Sunday, October 28, 2012

A123 Systems Saga Is Far From Over

Published October 29, 2012

By Jeff Cobb and Philippe Crowe


A number of developments happened Friday in Delaware bankruptcy court and between parties interested in A123 Systems, including Fisker Automotive, and between A123, former proposed purchaser Wanxiang America Corp., and the new intended purchaser of its automotive business, Johnson Controls, Inc. (JCI).

As for Fisker, it filed a request with the judge handling the A123 Systems bankruptcy to postpone the auction of the battery maker by at least 30 days as A123 prepares also to sell to JCI.

Automotive News reported that Fisker said it would also file an “emergency motion” that would challenge the “debtor-in-possession loan,” but did not elaborate.

“A hurried sale process will be damaging to the estates and deprive creditors of value that may be realized through higher and better offers,” said Gregg Galardi, a Fisker attorney, in filed court documents.

The business assets due to be sold off by A123 is the automotive portion, which JCI has agreed to purchase for $125 million. Reportedly, the deal is also subject to other offers that may arise in the pending bankruptcy auction.

Fisker says it is not attempting to block the proceedings and other related businesses in a rather complex set of financial transactions involved in the liquidation of A123, it merely objects to “various protections” for JCI “that are unnecessary, excessive, and counterproductive to a successful sales process.”

The protections include a potential breakup fee and expense reimbursement valued at $7.75 million and Fisker’s attorney said protections and procedures were specifically “crafted” for JCI.

“The best interests of the estates, however, are not well served through a hasty and unfair sale process designed to ensure that JCI is the ultimate purchaser,” he said.

Beyond Fisker’s filed requests, also opposing the breakup fee is U.S. Trustee Mark Kenney, who filed an objection that said the breakup fee cannot be considered “actually necessary to preserve the value of the estate.”

And yet a further objection in Delaware court came from owners of A123 li-ion battery patents including the University of Montreal, which is requesting consideration for the value of their licensed technology patents and A123’s rights to keep or transfer them in the sale.

In a previous report we noted this sale – while apparently being protracted with consideration for multiple parties’ rights and interests – is not a complete divestment of A123. A123’s former suitor, Wanxiang America Corp., the American arm of Chinese auto parts giant, has said it may still be interested in pursuing the company.

On Friday
Automotive News reported it appeared A123 was still walking away from the would-be suitor and was due to return to court this week to request approval of the rest of a $72.5 million loan, and to file documents in court to receive interim approval of a replacement debtor-in-possession facility from Wanxiang.

On Oct. 18 a replacement debtor in possession loan of $15.5 million was approved for A123 to be paid by JCI.

Twists and Turns

But while A123 is still walking away, the rest of the details may have been premature, as on Friday also, JCI announced that it has decided, in collaboration with A123, not to be the debtor-in-possession lender during A123's bankruptcy process.

This decision has been taken to avoid potential delays posed by threatened legal actions from Wanxiang.

JCI said in a press release that both parties believe this move is in the best interest of the estate as it will ensure an efficient process that, as per both parties, will best preserve value for creditors, employees and customers.

"We are concerned that back-and-forth posturing by other interested parties may lead to confusion and anxiety for A123's employees and customers and thus destroy underlying value in the estate," said Alex Molinaroli, president, Johnson Controls Power Solutions. "We have agreed to step aside as the debtor-in-possession funder in order to keep the process moving and allow it to conclude in the most efficient manner possible. We want to reassure employees, customers and other stakeholders that Johnson Controls remains committed to our acquisition of A123, which will keep a source of critical jobs, intellectual property and advanced battery technology in the United States."

JCI said it maintains its $125 million offer for A123's automotive assets as well as the stalking horse position in the bankruptcy process subject to bankruptcy court approval, expected on Nov. 5, 2012.

The company also plans to expand its offer to include A123's government business, including military contracts, during the bankruptcy process.

"A123's technology provides a combination of performance attributes that make it well suited for a range of applications, including certain automotive and military applications that are complementary to Johnson Controls' existing portfolio," said Molinaroli. "We remain committed to serving the dynamic global advanced battery market and continuing to build jobs in the United States."


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