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A123 Systems in non-binding MoU with Wanxiang for strategic investment of up to $450M; Wanxiang would own up to 80% of A123 common stock

8 August 2012

A123 Systems, a developer and manufacturer of advanced lithium-iron phosphate batteries and systems, 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.

A123 announced the Wanxiang deal along with its financial results for the second quarter ended 30 June 2012 in which the company reported a net loss of $82.9 million (a 50% increase in loss compared to a net loss of $55.4 in 2Q 2011) on total 2Q 2012 revenue of $17.0 million (a decrease of 53% from $36.4 million in the second quarter of 2011).

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.

Today’s announcement is the first step toward solidifying a strategic agreement that we believe would remove the uncertainty regarding A123’s financial situation. 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.

—David Vieau, CEO of A123

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 US-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 US.

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 US 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.

—Weiding Lu, CEO of Wanxiang Group

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% 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% 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.

2Q 2012 results. During the second quarter of 2012, transportation revenue was $7.0 million and commercial revenue was $4.5 million. This compares to transportation revenue of $24.4 million and commercial revenue of $5.2 million in the second quarter of 2011. Revenue from the electric grid market was not material in the second quarter of 2012 or the second quarter of 2011.

During the second quarter of 2012, product shipments were 16.3 million watt hours compared to 42.6 million watt hours in the second quarter of 2011.

Within total revenue of $17.0 million, product revenue was $11.5 million, a 61% decrease from $29.6 million in the second quarter of 2011, and services revenue was $5.5 million, a decrease of 19% from $6.8 million in the second quarter of 2011.

Gross loss was $29.2 million in the second quarter of 2012, compared to a gross loss of $17.5 million in the second quarter of 2011. Included in the second quarter of 2012 gross loss is a $3.3 million non-cash asset impairment charge related to the Korea facility shutdown.

Net loss was $82.9 million, or $0.56 per common share, based on 147.0 million weighted average common shares outstanding in the second quarter of 2012. This compared to a net loss of $55.4 million in the second quarter of 2011, or $0.44 per common share, based on 124.5 million weighted average common shares outstanding.

The second quarter of 2012 net loss included a $8.4 million non-cash charge related to the change in fair value of warrants and embedded derivatives that A123 issued in January and May of 2012, as well as a $2.9 million non-cash charge related to an additional write down of its investment in Fisker Automotive.

Adjusted EBITDA was a loss of $52.4 million in the second quarter of 2012, compared to a loss of $41.1 million in the second quarter of 2011.

A123 Systems had cash and cash equivalents of $47.7 million as of 30 June 2012. This balance does not reflect $6.8 million in net proceeds from its registered direct offering of common stock and warrants announced on 6 July 6, 2012, $30.0 million from 6.00% senior convertible notes offering that was restricted as of 30 June 2012, or the new bridge facility, and convertible notes and warrants offering. Cash and cash equivalents were $113.1 million as of 31 March 2012.

August 8, 2012 in Batteries | Permalink | Comments (23) | TrackBack (0)

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A-123 could not continue with major ongoing deficits. Selling to a major Chinese manufacturing organisation before going Chapter 7 or 11 is a wise decision. A-123 patents will be used for massive lower cost future battery production for the faster growing Asian market.

Many will claim that this represents a complete 180 for USA's Industries. It is true but it has been going on for 20+ years with many more to come in the next 20+ years. Manufacturing will go where the market and $$$ are.

The nice part about having the Chinese own this and pursuing batteries an EVs is that I don't think they have a predisposed political/business structure that is vested in the status quo. Therefore, those of us who want cost effective EVs are more likely to get them from China than we are from US companies. The US is willing to send young people to die for oil, but not willing to invest in technologies that would free us from the need for that commodity. The US car companies are willing to build a few compliance vehicles too, and make it look like they want to do it. But really, they would prefer to sell you the highly profitable internal combustion engines with all their wearable and replaceable parts.

Brotherkenny4 makes sense, at least when considering Bush Oil Wars, the middle-class financial meltdown, GM crushing EV1s a decade ago, or GM crushing electric trolleys for many decades prior.

Especially, as long as the US has it's 500X worker wage CEOs/bankers(or $20M/yr "retro-retired" vulture CEOs) and their mindsets/lawyers, US jobs and prosperity seem bleak.

Not a good move by any means; what you are doing here is transferring control of the country's battery knowledge to another nation. The A123 battery chemistry is great for power in starter batteries, race car batteries,etc. And, now the current greedy group of capitalists that run the country (read banksters, politicians and lobbists here) are cashing out this company.

I would like to see A123 bankrupt and reorganize to keep the technology at home. Perhaps a company like Tesla, Apple could take over and make it work. But, you know what? The Big Oil firms love it as it slows down our transitions to other forms of energy.

Check out the story, and more specifically the comments by readers on this story as reported in the Wall Street Journal. http://online.wsj.com/article/SB10000872396390443991704577576881949308486.html
I hope these commenters are just crazy trolls, because if these guys represent our business folks, we are in deeper trouble that I could ever have imagined. Most just don't seem to understand how anything works.

Note that Wanxiang has a relationship too with Ener1, another battery company funded to build factories here. The EV haters have basically said that both of these companies (Ener1 and A123) were failures, yet, here they are with funding to last until they become profitable, which is next year for A123. Although, the profits will be for the Chinese. Congratulations all you brilliant MBAs out there. Way to build the future of America. You were handed over a billion dollars to start up an industry and you f'd it up. Brilliant, just brilliant. I have no fricking idea why we can't get our economy going, it's a mystery.

A123 were given $250-300M between various DOE, MEDC and USABC grants, creating a company valued at $2B and funded by the American taxpayer.
Now after 24 months of gross mismanagement a Chinese buyer is permitted to come in and take a 80% controlling interest in the company for pennies on the dollar and we (the American taxpayer) are supposed to feel OK about this, bulls***t.
Were is the accountability, how can the DOE go forward with the balance of its grants and how come Dave Vieau and his teams heads are not on a pole rather than negotiating $M parachute and stay on packages.
Total fraud!!!!

B4...don't you think that USA (and EU) had their turn at the wheel and abused it. The tide is changing fast and the wind is blowing towards China (now) and India (next). USA and EU will have a hard time to compete against 3,000,000,000 Asians unless we find ways to reduce our production cost.

The USD and EURO are over valued by about 50%, even if they have both gone down by about 30% in the last few months. One way to reduce the value of the USD is to further lower the interest rate on the huge US Debt. A 50-cent dollar would make American products more competitive and local retailers like Walmart, Target, Costco, Home Depot, Lowes, Dollar Stores, etc etc would start selling local products instead of imported ones. Of course, our buying power, specially for all imported products, would go down. Some belt tightening would have to be done. Oil at $200/barrel would have an impact and people would start looking for more fuel efficient vehicles etc.

Thank God the Federal Government is not involved.
We have nothing to fear from China Inc.

Green Bull.....facts are that it is becoming more and more difficult to manufacture common products at a competitive price in USA-Canada-EU. Have a close look at what is sold at major chain stores and you will quickly realize that the majority is imported, mostly from China-Asia-Mexico etc.

This will grow month after month as long as the local production cost is much higher than China's etc. This will happen until China's production cost goes up by about 200% to 400% or USA's goes down or both. Another progressive devaluation of the USD would help. A higher valuation of the Chinese currency would also help but Chinese may not agree to shot themselves in the foot.

In the long run, our salaries (the 97% and specially the 3%) and our general production cost will have to go down and China's/India's and others will have to go up. That is not for tomorrow.

Meanwhile, many in our middle class will drop to a low level class and may not be able to afford to drive heavy gas guzzlers and live in over sized house. The on-going decline and fall of the USA manufacturing will hurt many.

Thanks, BK4 for the link to WSJ.
It doesn't take a MBA to understand why manufacturing is not doing well in the US and EU when the costs of labor and regulatory compliance are many times over in developed countries than what manufacturers are paying for in China, India, and Mexico et al. and when the out-sourced products are re-imported without significant tariff.

The manufacturers in the US, EU and Japan are not competing with China et al in a level playing field, but at a huge disadvantage. It's analogous to sending your kids to play Varsity Football with their hands tied behind their backs, and then you wonder why they can't win, but got bloody noses all over!!!

If our government wants our industries to succeed and create domestic jobs, the guvmint must be a fair referee and ensure a level playing field. No kids should be sent to play football with their hands tied behind their backs.

@HarveyD,
The productivity level per worker in the USA has been rising rapidly, and is about the highest in the world. Yet, the cost of living and cost of doing business is many times higher in US than in China, such that you cannot pay the US worker what you would pay a Chinese worker, and expect the US worker to be able to live on that salary. And, if you try to do that anyway, the US workers would not have any buying power whatsoever, so that most of the stuffs produced would piled up in warehouses and few have the money to buy much of anything, and DEFLATION will happen, and economic collapse will ensue, just like it did in the 1930's just before the Great Depression.

So, the answer is not to lower our standard of living by forcing every workers in the USA and EU down to Chinese standard and precipitate a Second Great Depression!!! The answer is to raise everyone's living standard by convince China et al to raise theirs, better wages and better working conditions for their workers, OSHA's rules equivalent to the US and EU, same labor standard, same environmental standards etc...or else impose a gradually-rising tariffs on their products proportional to the differences in standards between theirs and ours, until all standards catch up...and then we would really have FREE and FAIR TRADE.

Parallel to the Tariff plan, the guvmint must also ensure that the living cost in the US must be brought down to reasonable world-wide standard. Huge urban sprawls cost a lot in term of natural resources such as concrete and piping and land, time spent on daily commute, energy spent on huge SUV's that carry only one person, woeful lack of public transportation, and a hugely and totally-unresonably expensive health care system and legal system...High cost of living means lower competitiveness level economically.

No electorial candidate dare mention these issues, because in a Democracy...uh...Idiocracy, you get votes by telling your constituents what they LIKE to hear, not what they NEED to hear!!!

We will need to get out of our Idiocratic governance system...FAST...by assigning different weight to each voter...Smart and high-tax-payers need more votes per person, while those with lower cognitive-skill or low-to-no-tax-payers need fewer votes per person...The US founding Fathers intended for a Republic wherein policy making are done by the elites, not by the mass of the people. There were pole tax earlier in the US history, and voters initially were restricted to property owners only.

@Dursun,
Thanks for the reference on China Inc. China is ruled by the elite 5%--the Communist Party (CPC), not by a Democracy...uh Idiocracy...!!! To become member of the CPC, one must demonstrate records of public service and dedication to the cause and competence, or good connections...Only one out of eight person applied can get into the CPC.

Lets put our marco economic theories to the side for the moment and focus on the specifics here.

Firstly, if a Chinese company acquires a US Gov. funded company Co. that is still committed to funding it more US tax payers money then there should be a contingency for the US tax payer to get their money back as part of the deal. Therefore the purchase price should include a $300M grant payback clause.

Secondly, If any of the 99% of the US workers referenced above had screwed up so badly as the A123 management team have then they would be fired or sent to jail. Not be negotiating retention bonus's and $M salary packages. Lets see the US gov. enforce some accountability here.

I agree with most of what you say, Roger, but you misfire with this:

Parallel to the Tariff plan, the guvmint must also ensure that the living cost in the US must be brought down to reasonable world-wide standard. Huge urban sprawls cost a lot in term of natural resources such as concrete and piping and land, time spent on daily commute
The living cost and long commutes are all about getting acceptable living conditions, away from the "urban" ills of crime and "bad schools" (in reality, bad students).  All of these things have the same underlying cause, which is the inability to escape the criminal/dysfunctional element by any legal means other than pricing them out.  The only solution is to make those means legal again, beginning by overturning the 1948 USSC decision Shelly v. Kraemer and eliminate the current "civil right" to misbehave in schools, in malls, and everywhere else.

Agree, E-P. Unfortunately, that's the reality that may be solved by ending the "Idiocracy" state.

To become member of the CPC, one must demonstrate records of public service and dedication to the cause and competence, or good connections...Only one out of eight person applied can get into the CPC.

Oh! That explains why Communist Chinese are better at business than we are. Anyone can become a successful politician in America.

@E-P,
I've just looked up Shelley v. Kraemer, and this is purely about racial discrimination. I don't see how overturning this would help solving the crime and violence problems in urban areas, since crime and violence can be committed by people of any race, color or ethnicity.

However, we do now have extensive computerized data-base records on people who have committed crimes, and child-sexual offenders are often barred from certain areas like near schools and daycares. With E-verify and similar on-line sites, you can verify in minutes anyone's previous criminal records. Notice that crime rates have recently come down a lot, thanks to Police active patrol of most troublesome areas based on computerized records, and better computerized records screening. If you've seen the movie "The Minority Report", technologies of the future can be used to predict crimes before it will happen by actively tagging certain individuals who are violent and criminal behaviours, and monitored them 24/7 by AI computer, just like we have been able to prevent another 911 since 2001 by pre-empted all subsequent plots by terrorists.

Discrimination is legal and constitutional if based on merits and other fair and objective criteria instead of based on race, age, gender, color, or ethnicity.

I don't see how overturning this would help solving the crime and violence problems in urban areas, since crime and violence can be committed by people of any race, color or ethnicity.
You "don't see", despite 90% of the murders and 98% of the total violent crime in NYC being committed by Blacks and Hispanics?  Yes, you could really eliminate 98% of NYC's violent crime by leaving only the Whites, Asians and "other".

In the pre-"civil rights" era, minorities out of their designated areas would be arrested or receive extrajudicial "encouragement" to be elsewhere.  This restricted most of their criminal activities to the zones where they lived (those activities made the areas where they lived very undesirable).  After "civil rights" and "fair housing", the only legal way to avoid the crime was to move out of reach.  As real-estate brokers engineered "blockbusting" to get business through forced turnover, Whites attempted to flee beyond the range of the criminal element unleashed upon them.  You can see the results in Detroit, Gary, St. Louis, and many other formerly-thriving cities:  they might as well have been bombed out like Dresden.

You will never address urban sprawl unless you address the reasons it exists.  If you can make urban enclaves from which the criminal element is legally and efficiently barred (like apartment buildings with doormen), White people will live there.  But those barred will be overwhelmingly "of color", because that's what the criminal element (self-selected by behavior) looks like.

this is purely about racial discrimination.
The Obama administration is now pushing to equalize rates of school punishments by race, regardless of rates of offending conduct, to eliminate "disparate impact".  The obvious and inevitable effect of this will be to make any school with a substantial non-Asian minority (NAM) student fraction unmanageable and unsafe for Whites and Asians, who will flee either to private schools or beyond the minority populations.

Addressing urban sprawl requires a removal of its causative factors.  Just because they are "politically incorrect" does not mean they are not controlling; remember Trofim Lysenko.

Large city crimes can better managed. NYC is a good example where many areas have been 'cleaned' to some extend.

Hiding ourselves into remote 'fenced in' far away suburbs is a short term very expensive solution unless those hide-outs are organized like 'kibbutzs' with all services, jobs etc.

There must be a way to better managed or eliminate street gangs and other similar undesired groups.

NYC's gentrification relies on increasing prices to push out the criminal (minority) element, just like everywhere else.  It is not a general solution for urban sprawl, particularly when the criminal element is pushed back in via "affordable housing" mandates and into existing neighborhoods through Section 8 vouchers.

Increased criminalization of the poorer layer of many societies is a very old problem that very few have managed to fix properly and definitely.

Short of racking them off the streets and sending them to booth camps on some remote islands, their number will keep on growing. Over 2,000,000 of them are currently in US's jails without expected results. Special schools to keep them very occupied 12+ hours a day may work but may not be very democratic. Sending them back where they came from (starting with the one with a criminal record) could be the most effective way to deal with the growing problem. We are doing the opposite by accepting 300,000+ new potential trouble makers every year in Canada. The composition of Vancouver, Toronto and Montréal has changed (for the worse) in the last 30 years or so. Good European immigrants have been replaced with uneducated people from the third world. They compose 90+% of our illegal street gangs. Newspapers are not allowed to publish their real names or photos not to be accused of discrimination. The Swiss know better.

Perhaps it would have been best if the gov had restricted the $7500 tax credit on batteries to ones made in the US.

Excellent idea Herm.

Excellent idea, Herm. However, even imported battery packs should still receive smaller tax incentive, because this enables a PHEV to use domestic electricity instead of 50%-imported petroleum, thus adding to our energy security.

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