Thursday, October 18, 2012

Wanxiang Says It Still Might Seek To Buy A123 Systems

Published October 18, 2012

By Jeff Cobb


Documents filed by A123 declared as of Aug. 31 it had assets of $459.8 million and $376 million in debt. Wanxiang's U.S. Boss says bankruptcy gave A123 a fresh scrubbing making it possibly more valuable now.

As one might expect, twists and turns in the A123 Systems bankruptcy and sale have yet to play out, and these appear to include Chapter 11 might just have made the company more desirable.

This was portrayed today by the president of Wanxiang Group Corp.’s U.S. operations to Automotive News who said it may still want to buy A123 and bankruptcy protection eliminates certain legal risks it had already sought to insulate itself from in previous negotiations.

The Chinese company’s U.S. head gave brief commentary on U.S. politics and said also it may still pursue its purchase despite a deal announced Tuesday to sell to Johnson Controls, Inc (JCI).

“Bankruptcy court is like a filter that lets a dirty big boy covered with mud go through it and turn himself into a clean boy,” Ni said to Automotive News. “Even though the boy may become smaller, he doesn’t have the obligations he used to have.”

The arrangement with JCI described by A123 CEO David Vieau called for the cessation of negotiations with Wanxiang and involved sale of the automotive side of the business. Actually, Ni says Wanxiang was interested in all of A123, not just some of its assets, and his concerns are the Chapter 11 scrubbing of the dirty boy may attract other suitors besides.

And indeed, on Tuesday A123 said it is continuing talks regarding strategic alternatives for its grid, commercial, government and other operations, and has received several indications of interest for these businesses.

The Massachusetts-based company said it cancelled the up-to $465 million whole company sale to Wanxiang to pursue the $125 million partial sale to JCI due to “unanticipated and significant challenges to its completion.”

What specifically these “challenges” were that Vieau benignly alluded to, he did not say, but undoubtedly political concerns were part of the mix.

As we noted the other day, the politicized elements of A123’s potential bailout by a Chinese suitors that would have given it an 80-percent controlling stake had been fresh fodder for opponents of President Obama’s green energy investments.

It had been editorialized by the likes of conservative former GM Vice Chairman Bob Lutz, others, and even Republican presidential candidate Mitt Romney’s camp was sharpening its talking points to poke Obama with the sale of a taxpayer funded company to the Chinese based on alleged mismanagement on several fronts.

Automotive News quoted Romney campaign spokeswoman Andrea Saul who said in an e-mail “A123’s bankruptcy is yet another failure for the president’s disastrous strategy of gambling away billions of taxpayer dollars on a strategy of government-led growth that simply does not work.”

Ni acknowledged this poignant aspect blocking his company's intent, saying in so many words that the rancor may be heightened by this being an election year, and the American two-party system is too polarized, simplistic and looking for an obvious scapegoat.

“In a two-party system, they have to figure out an enemy and China is the easiest one to target,” Ni said. “This is just the reality.”

But despite allegations including national security concerns by Republicans including U.S. Rep. Cliff Stearns, R-Fla. decrying the American company's sale to a Chinese interest, Ni observed federal regulators had not expressed any opposition.

At this point, A123 has not issued any statements suggesting the JCI deal is not still on, but its former suitor says it wants it back. Nor is the sale to JCI an end to A123’s problems. Even if it could be like running into the face of a political tidal wave to re-open talks with the Chinese, it has not said what it is going to do with the rest of its assets and operations.


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