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
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.