A123 Systems Goes Bankrupt and Sells Automotive Assets To Johnson Controls

Posted Oct 16, 2012

A123 Systems Inc. (NASDAQ:AONE) is a company that manufactures advanced lithium-ion battery systems for the automotive and electric grid sectors.  Today the company has announced that Johnson Controls Inc. (NYSE:JCI) will buy the company’s automotive assets in a transaction that is valued at $125 million.  Johnson Controls will gain ownership of A123’s  automotive technology, products, and customer contracts.  They will also gain ownership of A123’s facilities in Livonia and Romulus, Michigan along with the cathode powder manufacturing facilities in China and A123’s equity interest in Shanghai Advanced Traction Battery Systems Co., which is A123’s joint venture with Shanghai Automotive.

Johnson Controls will license back to A123 certain types of technology for their grid, commercial, and government businesses.  A123 will engage in discussions for strategic alternatives for their grid, commercial, government, and other operations.  A123 and all of their U.S. subsidiaries have filed voluntary petitions for reorganization and under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.  By filing for bankruptcy, A123 will be allowed to provide for an orderly sale of their business assets. under Section 363 of the Bankruptcy Code.

A123 has also received a commitment from Johnson Controls for $72.5 million in debtor in possession financing to support A123’s continue operations during the pendency of the sale.

“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,” said David Vieau , Chief Executive Officer of A123. “We determined not to move forward with the previously announced Wanxiang agreement as a result of unanticipated and significant challenges to its completion. Since disclosing the Wanxiang agreement, we have simultaneously been evaluating contingencies, and we are pleased that Johnson Controls recognizes the inherent value of our automotive technology and automotive business assets. We are also pleased that we have received indications of interest that recognize the value of our grid and commercial businesses. We are encouraged by the significant interest we have received, as multiple parties have submitted proposals for these businesses. As we move through this transaction process, we expect to continue operating and working with customers and suppliers.”

Pulse2 wrote about the previous $450 million offer from Chinese company Wanxiang Group.  A123’s automotive capabilities will complement the existing portfolio that Johnson Controls has in place for their powertrains and energy storage solutions.

The transaction that A123 has set up with Johnson Controls is being completed pursuant to Section 363 of the U.S. Bankruptcy Code and is subject to certain issues that could come up (like better offers and antitrust approval).

The companies Latham & Watkins LLP and Richards and Layton & Finger are working as legal advisors for the team.  Lazard is serving as the financial advisor at the company.  Lazard is serving as financial advisor.  Alvarez & Marsal is serving as the restructuring advisor to A123.

What makes this deal quite complicated is that the company received a grant from the Department of Energy.  Vice President Joe Biden was in Michigan in August 2009 to announce over $1 billion in battery grants for Michigan-based auto companies.  A123 was one of those companies and they received $249 million in grants from the Department of Energy for building a better production facility.