By Julie Wernau, Chicago Tribune reporter
December 2, 2012
Thursday's auction of battery-maker A123 is expected to draw both U.S. and foreign bidders against the backdrop of growing pressure from military leaders and politicians to block U.S.-funded technology from being transferred outside the country, especially to a Chinese-affiliated company.
The struggle over government-backed A123 comes as the U.S. has stepped up efforts for supremacy in energy storage technology. On Friday, Energy Secretary Steven Chu came to Chicago to announce that the Department of Energy would accelerate battery development through Argonne National Laboratory, in suburban Lemont. Funded with $120 million, the goal is to make batteries that are five times as powerful and five times less expensive in five years.
"You have to be in this game," Chu told the Tribune. "If you say, 'No. There's a chance we're going to fail, therefore we'll let Japan, Korea, Germany, China, you name it, own this space,' then we will have failed."
Two of the major players keen on acquiring A123's assets are Johnson Controls Inc., of Milwaukee, and Wanxiang Group Corp., a Chinese auto parts maker whose North American headquarters is in Elgin.
Johnson Controls, which was awarded $299 million in federal grants, has said A123's technology is in its early stages and will require further funding but that the company is committed to adding jobs in the U.S. It describes itself as "one of the last standing American companies competing in and building this U.S. advanced battery industry."
Meanwhile, a coalition of former U.S. military leaders and industry experts urged the Committee on Foreign Investment in the U.S. to thwart Wanxiang's bid in a Nov. 27 letter: "Aside from the national security risk, American taxpayers should not pay for development of a technology that is freely transferred to a non-allied nation.''
But some, like Charles Gassenheimer, believe that has already happened.
Last week, Gassenheimer was in Washington lobbying for Wanxiang. In the past he has also been the chairman of electric car maker Think and chief executive of battery-maker Ener1, both of which were snapped up out of another bankruptcy by Boris Zingarevich, a Russian businessman. Both Ener1 and Think had also been nurtured by the DOE and state and local government funding. Ener1's biggest investor other than Zingarevich is Wanxiang, which has a joint venture with the battery-maker to co-manufacture lithium-ion energy storage systems for the Chinese market.
"Why is (the Ener1-Think case) different than this case where Wanxiang has been in the U.S. since 1994, reputably, and has made tons of acquisitions in the U.S. and isn't state-owned by the Chinese government?" Gassenheimer said.
He also noted that with his acquisition of Ener1, Zingarevich also acquired U.S. military contracts. Wanxiang has promised to strip out any military contracts if it wins the A123 auction.
At one point, Wanxiang believed it had an agreement with A123. Wanxiang had offered to invest $450 million in A123, which would have spared it from bankruptcy. But A123 didn't consummate the deal. Apparently there was concern the bid would fail to garner government approvals.
For Wanxiang Group Corp., a $13 billion company and the largest automotive components maker in China, A123 would fit into its investment portfolio of electric-vehicle-related companies. The strategy would be to hold on to these assets as electric vehicles caught on and batteries are improved.
But the proposed deal in August set off a political firestorm. U.S. Sens. John Thune, R-S.D., and Charles Grassley, R-Iowa, pressed the Energy Department to explain how it could allow U.S. battery technology to possibly be snatched by China. (A123 was awarded a $250 million grant in 2009 and had drawn down about $132 million as of its bankruptcy.)
Shortly before the presidential election, A123 filed for bankruptcy protection. In its filings, A123 said it had contacted 74 potential suitors, but only Wanxiang offered to invest in A123 as a whole prior to its bankruptcy. Other offers were limited to acquiring portions of the business. At the same time, A123 announced a prepackaged deal in which Johnson Controls would acquire A123's automotive portfolio for $125 million. That amount is where the bidding begins.
This week's auction will be held at the Chicago office of Latham & Watkins, which represents A123. As the so-called stalking horse bidder, Johnson Controls is entitled to a $2.5 million breakup fee if it isn't chosen as the winner.
For his part, Pin Ni, president of the American arm of Wanxiang, is resigned to the fact that politics may ultimately decide the fate of A123.
"We thought that we had a deal, but apparently for whatever reason they engaged in discussions with Johnson Controls," Ni said in an interview last week. "This is a business. They have the right to choose whoever they need to choose. If they think that Johnson Controls will be a better fit for them, that's fine."
If Wanxiang acquires A123, its business relationship with Zingarevich means it would have access to two battery companies and three auto companies catering to three kinds of distinct electric vehicle customers and with doors to China and Russia.
"It's more important for us to save this business," said Ni, who said he would keep open A123's plants, retain its workers and continue to produce batteries even if it meant losing money for five or 10 years.
As for concerns about A123's technology falling to foreign competitors, Ni brushes off the notion, repeating that his Elgin-based company has invested in America for two decades.
"If you're an immigrant here," he said, "you love this country. You make this commitment here. You are a part of this economy."
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