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Bids heat up for assets of A123 Systems
October 31, 2012 11:42 AM
The bid war for the assets of A123 Systems is becoming contentious - and for good reason.
This week, Johnson Controls, was replaced as debtor-in-possession by Chinese supplier Wanxiang Group Corp., according to bankruptcy filings. Milwaukee-based JCI retains its stalking horse bid of $125 million for A123's bankrupt automotive assets. Wanxiang, which offered A123 $465 million for an 80 percent stake prior to bankruptcy has also entered a new, yet-to-be-revealed bid.
JCI pulled out as a lender after California-based Fisker Automotive asked the bankruptcy judge to delay A123's Nov. 19 auction by 30 days. According to court filings, the auction did not provide enough time for competing bids and worries over warranty of A123 batteries.
"A123's obligations under this supply agreement, including its warranty obligations thereunder, gives rise to substantial unsecured claims in favor of Fisker in these cases that may exceed $100 million in the aggregate," the company said in its appeal.
What this means, according to an anonymous source familiar with Fisker and A123, is that A123 has yet to complete a replacement battery program after it shipped defective cells earlier this year.
The defect was identified in April after a Fisker Karma plug-in hybrid fitted with an A123 lithium-ion battery failed during a test by Consumer Reports. Replacing the defective batteries was expected to cost A123 $66.8 million, including a $15 million inventory charge.
The source said that Fisker has yet to fulfill its obligation to replace the defective batteries. Everything is negotiable in bankruptcy court and it is likely JCI wouldn't agree to honor that contract or to replace the batteries.
With two bids already entered ahead of the Nov. 19 auction, barring the approval of Fisker's request to delay, more bids could be on the way.
Bankruptcy filings reveal that A123 received four offers prior to bankruptcy, Wanxiang's and three others to acquire part of its assets. The unnamed source said JCI was a bidder as well as two other "large" battery companies. The source did not reveal the other bidders.
On the short list of speculation are Asian firms SK Group, Samsung SDI, Hitachi Ltd., LG Chem Ltd. and Panasonic Corp., Michael Lew, senior analyst covering A123 for New York City-based Needham & Co., told Crain's earlier this month.
Bidders could be getting A123's assets and intellectual property on the cheap.
A123 has used only $132 million of its $249.1 million grant from the U.S. Department of Energy and the government arm hasn't ruled out allowing the next buyer to use the remaining $117.1 million of the grant — provided it remains a U.S. investment, William Gibbons, DOE deputy press secretary, wrote in an email to Crain's.
JCI is offering $125 million for A123's assets. If the bid is approved, it could get A123 for a net swing of $7.9 million.
AI
