China's Wanxiang to take control of battery maker A123
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DETROIT (Reuters) -- China's largest automotive parts supplier is poised to take control of U.S. battery maker A123 Systems, which received a $249 million green-technology grant from the Obama administration in 2009.
China's Wanxiang Group Corp. plans to invest up to $450 million in A123 Systems, taking an 80 percent stake in the U.S. company, A123 said today.
A123 also reported a second-quarter loss of $82.9 million, or 56 cents per share, compared with a loss of $55.4 million, or 44 cents per share, a year earlier.
The Wanxiang investment will include a bridge loan and the purchase of A123 senior secured convertible notes and warrants.
The companies have signed a non-binding memorandum of understanding and expect to conclude an agreement "in the near term," A123 said.
Any purchase agreement will be subject to U.S. government scrutiny and approval.
A123 warned last month that it had cash to fund its operations for only the next four to five months.
A123 received more than $200 million from venture investors before raising $378 million in a 2009 initial public offering. That same year, it was awarded a grant under the Obama administration's $2.4 billion Electric Drive Battery and Component Manufacturing Initiative.
Wanxiang, one of the largest non-government-owned companies in China, with annual revenue of more than $13 billion, has an electric vehicles subsidiary in Hangzhou and a U.S. subsidiary based outside Chicago. The parent company supplies auto parts to many of China's largest automakers.
A123 has battery contracts with BMW and U.S. startup Fisker Automotive, and is slated to provide batteries for General Motors' upcoming Chevrolet Spark EV.
Fisker and GM declined to comment on the deal.
The memorandum of understanding calls for Wanxiang to provide an initial loan of $25 million, plus another $50 million on closing. Wanxiang also will purchase $200 million in senior secured convertible notes and invest as much as $175 million through the exercise of warrants it would receive in connection with the bridge loan and convertible notes.
In a second-quarter earnings conference call, A123 CEO David Vieau said the pact with Wanxiang "is the first step toward solidifying a strategic agreement that we believe would not only provide financial stability to A123 as we continue to grow, but it would also align us with a large, successful global brand in the automotive and cleantech industries... We expect that a strategic agreement with Wanxiang would help enhance our competitive position in the global marketplace, especially in China."
Wanxiang CEO Weiding Lu said a long-term agreement would enable it to "build on the foundation A123 has established in the U.S. and help expand the company's capabilities both domestically and internationally."
A123 said second-quarter revenue fell 53 percent to $17 million.
It ended the quarter with $47.7 million in cash and equivalents, down from $113.1 million at the end of the first quarter.
Joseph Lichterman contributed to this report
PRESS RELEASE: A123 Systems Announces Non-Binding Memorandum of Understanding With Wanxiang Group Corporation for Strategic Investment
WALTHAM, Mass., Aug. 8, 2012 (GLOBE NEWSWIRE) -- A123 Systems (Nasdaq:AONE), a developer and manufacturer of advanced Nanophosphate® lithium iron phosphate batteries and systems, today announced that it has signed a non-binding memorandum of understanding (MOU) with Wanxiang Group Corporation establishing the framework for a strategic investment through which Wanxiang would invest up to $450 million in A123. Wanxiang is China's largest automotive components manufacturer and one of China's largest non-government-owned companies. Wanxiang's proposed investment in A123 is intended to create the capital structure necessary for the company to continue growing its core businesses, and alignment with Wanxiang is also expected to substantially strengthen A123's access to the growing vehicle electrification and grid-scale energy storage markets in China. A123 will hold a conference call today at 8:00 a.m. ET to discuss this announcement as well as the company's financial results for the second quarter 2012.
"Today's announcement is the first step toward solidifying a strategic agreement that we believe would remove the uncertainty regarding A123's financial situation," said David Vieau, CEO of A123. "A substantial capital investment from Wanxiang would not only provide financial stability to A123 as we continue to grow, but it would also align us with a large, successful global brand in the automotive and cleantech industries. Wanxiang has a successful track record of operating in the U.S. with significant employment and commitment to good corporate citizenship, and we expect that a strategic agreement with Wanxiang would help enhance our competitive position in the global marketplace, especially in China."
Wanxiang Group Corporation and its related companies have more than $13 billion in revenue and more than 45,000 employees across its global businesses in equipment and automotive parts manufacturing, clean energy, financial services, agricultural products, natural resources and real estate, among others. Through its subsidiaries, including Wanxiang America Corporation, it has more than 3,000 U.S.-based employees.
"A123 offers industry-leading technology for vehicle electrification and grid-scale energy storage, as well as strong manufacturing and systems engineering capabilities in Michigan and Massachusetts. We think this creates important synergies with Wanxiang, which has been involved in this field for 12 years and has strong R&D and manufacturing capabilities in China, especially as we continue to expand on our strategy of investing in the automotive and cleantech industries in the U.S.," said Weiding Lu, CEO of Wanxiang Group. "This MOU is the first step toward a longer-term agreement through which we plan to build on the foundation A123 has established in the U.S. and help expand the company's capabilities both domestically and internationally, which we believe would create long-term value to the customers, investors and other stakeholders of both companies."
Under the proposed terms of the strategic agreement outlined in the MOU, Wanxiang would provide A123 with up to $75 million in initial debt financing under a Senior Secured Bridge Facility, with an initial credit extension of $25 million and $50 million to be funded after the satisfaction of certain closing conditions, and, subsequently, upon satisfaction of certain closing conditions, purchase $200 million aggregate principal amount of A123's Senior Secured Convertible Notes. The agreement would also include the potential for Wanxiang to invest up to an additional $175 million if it exercises the warrants that would be issued in connection with the Bridge Facility and the Convertible Notes for cash. Incurrence of the remaining $50 million of loans under the Senior Secured Bridge Facility would be subject to the satisfaction of certain approvals and conditions, including receipt of favorable determination from CFIUS and receipt of Chinese government approvals. Issuance of the Convertible Notes and the related warrants would also be 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 six percent Convertible Notes and relevant warrants and the repurchase or retirement of at least 90 percent of A123's outstanding 3.75 percent convertible subordinated notes due 2016.
According to the proposed terms of the strategic agreement, if the entire amount of the initial debt financing is provided to A123 and the full amount of the warrants and Convertible Notes are issued and exercised for cash, Wanxiang's total capital investment in A123 from these agreements would total approximately $450 million. The total amount of shares of A123's common stock issuable upon exercise and conversion of the warrants and Convertible Notes would represent approximately 80 percent of the then outstanding common stock of A123. While the MOU is non-binding and the execution of definitive documentation is subject to negotiation and, among other items, the amendment of agreements with certain of A123's existing lenders, A123 and Wanxiang are currently negotiating definitive documentation and intend to close the full transaction by the end of 2012. A123 cannot provide any assurance, however, that definitive documentation will be executed, or, if it is executed, that the conditions to funding the full investment will be fulfilled.
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.
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