A123 Systems Inc., an MIT spinoff that received several hundred million dollars in federal and state grants to develop and manufacture its nanotechnology-based lithium-ion batteries, said it has agreed to sell its assets to Johnson Controls Inc. (IW 500/33) for $125 million.
"To facilitate the transaction process," A123 Systems said it has filed for Chapter 11 bankruptcy reorganization in the U.S. Bankruptcy Court for the District of Delaware.
Waltham, Mass.-based A123, which reported a net loss of $258 million for full-year 2011, also said it has secured nearly $73 million in "debtor-in-possession" financing from Johnson Controls to keep its operations going during the sale process.
Deal with Chinese Firm Scrapped
In August, A123 announced that it had signed a non-binding pact with Wanxiang Group Corp., China's largest automotive-components manufacturer, in which the Chinese company would invest up to $450 million in ailing A123 for an 80% stake in the firm.
At the time, A123 CEO David Vieau said the capital infusion "would remove the uncertainty regarding A123's financial situation."
However, Vieau on Wednesday said A123 decided to scrap the agreement "as a result of unanticipated and significant challenges to its completion."
"We believe the asset-purchase agreement with Johnson Controls, coupled with a Chapter 11 filing, is in the best interests of A123 and its stakeholders at this time," Vieau asserted in a news release.
Under the terms of the agreement, which still requires bankruptcy-court approval, Johnson Controls would acquire:
- A123's automotive-business assets, including all of its automotive technology, products and customer contracts.
- A123's facilities in Livonia and Romulus, Mich.
- Its cathode-powder manufacturing facilities in China.
- A123's equity interest in Shanghai Advanced Traction Battery Systems Co., A123's joint venture with Shanghai Automotive.
The deal also includes provisions "through which Johnson Controls intends to license back to A123 certain technology for its grid, commercial and government businesses," according to A123.
"A123 also continues to engage in active discussions regarding strategic alternatives for its grid, commercial, government and other operations, and has received several indications of interest for these businesses," the company said in a news release.
Battery Boom or Bust?
In 2009, the Department of Energy awarded $249 million to A123 Systems as part of President Obama's American Recovery and Reinvestment Act. A123 has used $132 million of that grant, according to the Energy Department.
In September 2010, the company opened a new 291,000-square-foot factory in Livonia, Mich., and then-Gov. Jennifer Granholm declared that it was part of her plan to make Michigan "the advanced-battery capital of the world." A123 secured $100 million in refundable tax credits from the Michigan Economic Development Corp. to help finance the facility.
Under President Obama, the Department of Energy has awarded "$2 billion in grants to 29 companies to build or retool 45 manufacturing facilities spread across 20 states to build advanced batteries, engines, drive trains and other key components for electric vehicles," according to Dan Leistikow, director of public affairs for the Energy Department, in a blog post on Wednesday.
Leistikow asserted that the investments have enjoyed "strong bipartisan support."
"More than 30 of these plants are already in operation, employing thousands of American workers, and our grants were matched dollar for dollar (or more) by private investments," he wrote.
Regarding A123 Systems, Leistikow asserted: "In an emerging industry, it's very common to see some firms consolidate with others as the industry grows and matures."
"A123, which has been building batteries for electric vehicles as well as for the nation's power grid, quickly established itself as an innovative player in the market," he wrote. "[The] news means that A123's manufacturing facilities and technology will continue to be a vital part of America's advanced battery industry."
Leistikow noted that A123 Systems received a $6 million grant in 2007 as part of the Bush administration's efforts to promote advanced-battery manufacturing.
Even so, Republicans weren't kind to the Obama administration in the wake of A123's bankruptcy filing.
"A123 is yet another example of President Obama gambling with taxpayer dollars and picking winners and losers in the green-energy world," said John Thune, a U.S. senator from South Dakota.
"There were clear warning signs that A123 was having financial problems even as the administration continued pouring millions of taxpayer dollars into this failing company."
Thune promised to "press the Obama administration for answers regarding the millions of taxpayer dollars given to A123."
Likewise, U.S. Sen. Chuck Grassley from Iowa declared that the Obama administration "needs to answer for this."
Grassley, however, did find a small silver lining.
"If there is something positive to be taken from this, it's that A123 has decided to sell a major part of its business to Johnson Controls, a U.S. company, rather than Chinese-owned Wanxiang," Grassley said in a news release. "That transaction raised concerns about national security because A123 has several Defense Department contracts.
"Sen. Thune and I expressed concern about the potential sale to a Chinese company, most recently last week. But the sale to an American company is small comfort, given the hundreds of millions of dollars wasted on this firm."