US-based Li-ion battery manufacturer A123 Systems announced the execution of definitive agreements with China’s Wanxiang Group Corporation, which follows the non-binding memorandum of understanding (MOU) that A123 signed with Wanxiang on 8 August 2012. (Earlier post.) Under the terms of the definitive agreements, Wanxiang plans to invest up to $465 million in A123, which includes an initial credit extension of $25 million that A123 expects to receive this week.
Wanxiang is China’s largest automotive components manufacturer and one of China’s largest non-government-owned companies. (Earlier post.) A123 Systems expects the full investment from Wanxiang will provide it with the capital necessary to strengthen its competitive position in the global vehicle electrification and grid energy storage markets.
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.— David Vieau, CEO of A123
Pursuant to the terms of the definitive agreements, Wanxiang would provide A123 with up to $75 million in initial debt financing under a Senior Secured Bridge Facility.
In addition to the initial credit extension of $25 million, $50 million would be funded after the satisfaction of certain closing conditions. Subsequently, upon satisfaction of certain closing conditions, Wanxiang would purchase $200 million aggregate principal amount of A123’s 8.00% Senior Secured Convertible Notes.
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% 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% of the fully diluted common stock of A123 outstanding at that time.
Lazard served as financial advisor to A123 for the above-described transactions.