Today A123 Systems said it anticipates its first $25 million this week from a total $465 million expected in financial resuscitation from Wanxiang Group Corporation.
In making this announcement, the Waltham, Mass. battery maker is keeping its shareholders, the media – and concerned members of the U.S. Senate – in the loop.
This year, A123 has suffered a series of setbacks, not least of which was a recall of battery systems supplied to Fisker Automotive Karma plug-in hybrids, and the company is down 71 percent this year with its stock trading below 50 cents today.
The company reported a second-quarter loss of $83 million and does not expect to break even until some time in 2013 assuming its help from the Chinese auto parts company, which has been said by critics to be getting the better part of the deal.
A123’s Nanophosphate lithium iron phosphate batteries and systems are considered grade-A technology. Endorsing that belief was a $249 million grant previously given by the Obama administration, but now with Chinese investors ready to take an 80-percent controlling share, critics are talking.
Included in those airing concerns are former GM Vice Chairman Bob Lutz in a feisty Forbes editorial and this in an Aug. 14 letter to to Energy Secretary Steven Chu from Republican Senators John Thune and Chuck Grassley.
Today A123 explained Wanxiang plans to invest up to $465 million – updating the $450 million previously reported – including an initial credit extension of $25 million expected this week.
The full investment from Wanxiang is being portrayed as providing necessary capital to strengthen the company’s competitive position in the global vehicle electrification and grid energy storage markets.
“We consider today’s announcement to be a strong validation of A123’s technology and the company’s ability to compete in high-growth markets,” said David Vieau, CEO of A123. “We believe that the significant commitment of capital from Wanxiang would help strengthen A123’s financial position, and by leveraging Wanxiang’s global capabilities, we expect to see increased demand for our products. Further, Wanxiang has demonstrated its commitment to partnering with and investing in U.S. companies, so we also believe that we will continue to expand on our strong manufacturing and systems engineering capabilities in Michigan and Massachusetts.”
A123 said Wanxiang intends to provide up to $75 million in initial debt financing under a Senior Secured Bridge Facility – $25 million this week, then $50 million would be funded after the satisfaction of certain closing conditions.
Next in the sequence of cash injections – and pursuant to the terms of definitive agreements – Wanxiang would purchase $200 million aggregate principal amount of A123’s 8-percent Senior Secured Convertible Notes.
Rather than reinterpret the details of the complex transaction, following is an excerpt from the legalese-laden press release:
The agreements also include the potential for Wanxiang to invest up to an additional $190 million by exercising the warrants that will be issued in connection with the Bridge Facility and the 8.00% Convertible Notes for cash. Incurrence of the remaining $50 million of loans under the Senior Secured Bridge Facility is subject to the satisfaction of certain approvals and conditions, including receipt of favorable determination from the Committee on Foreign Investment in the United States and receipt of Chinese government approvals. Issuance of the 8.00% Convertible Notes and the related warrants are also subject to additional conditions, including approval from A123’s shareholders, termination of the Hart-Scott-Rodino waiting period, the conversion or redemption of all the outstanding 6.00% Senior Convertible Notes due 2013 and related warrants and the repurchase or retirement of at least 90 percent of A123’s outstanding 3.75% Convertible Subordinated Notes due 2016.
If the entire amount of the initial debt financing is provided to A123, the 8.00% Convertible Notes are issued and the full amount of the warrants are exercised for cash, Wanxiang’s total capital investment in A123 from these agreements would total approximately $465 million. The total amount of shares of A123’s common stock issuable upon exercise and conversion of the warrants and 8.00% Convertible Notes would represent approximately 80 percent of the fully diluted common stock of A123 outstanding at that time.
This press release shall not constitute an offer to sell nor a solicitation of an offer to buy any of these securities, nor shall there be any offer, solicitation or sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state.
An A123 Systems employee checks the production line at the Livonia, Mich. facility.
The above constitutes the more or less fine print of what critics are saying constitutes the wholesale transfer of American-backed intellectual property to Chinese-government backed businesses.
Reuters first reported the two senators believed this to be the case.
“Billions of U.S. taxpayer dollars have flowed to foreign companies through the Recovery Act, and we are concerned that the recent announcement could lead to even more taxpayer dollars going overseas,” wrote Thune and Grassley wrote in their letter to Chu this week.
For his part, veteran industry executive Lutz decried extravagant expenses constituting mismanagement, and others have opined this deal saves the executives who have already lived lavishly.
Automotive News reported A123 CEO David Vieau has conceded some have “raised eyebrows” but justified the move as saving 900 jobs in Michigan where the company also has facilities.
“It’s a global industry and components are global,” he said. “This is giving us a better balance sheet and in this business a strong balance sheet is a prerequisite.”