Johnson Controls Inc.
) has agreed to buy the automotive operations of Waltham,
Massachusetts based lithium-ion battery maker
A123 Systems Inc.
) for $125 million. The Milwaukee, Wisconsin-based batter maker
will acquire A123's automotive business assets, including
automotive technology, products and customer contracts.
A123 SYSTEMS (AONE): Free Stock Analysis
JOHNSON CONTROL (JCI): Free Stock Analysis
To read this article on Zacks.com click here.
Johnson Controls will also buy A123's facilities in Livonia and
Romulus, Michigan; cathode powder manufacturing facilities in
China; equity interest in Shanghai Advanced Traction Battery
Systems Co.; as well as its joint venture with Shanghai
Automotive Industry Corporation ("SAIC").
A123 and all of its U.S. subsidiaries have already filed
petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court. The company is
expected to receive $72.5 million from Johnson Controls as
"debtor in possession" financing to support its operations during
the sale process.
In the meantime, China's Wanxiang Group revealed that it will
place superior bid for A123 compared to what Johnson Control has
offered as the deal with the latter is subject to a
court-supervised auction. However, Wanxiang, which will submit
its proposals next week, is yet to receive approvals from the
Committee on Foreign Investment in the U.S. and the government of
China for the acquisition.
What went wrong with A123?
A123 had tough times dealing with lower orders for Karma plug-in
hybrid from its leading customer Fisker Automotive (which has
generated 26% of the company's revenues in 2011) in October last
year and a costly recall of battery packs made for the same
company this year.
A123 was also highly disappointed with its failed $465 million
deal with Wanxiang. At the beginning, Wanxiang gave $22.5 million
loan to A123, including a cash advance of $12.5 million.
Future cash flow from Wanxiang were dependent on meeting certain
requirements by A123, such as getting approval from the Committee
of Foreign Investment and the Chinese government as well as the
absence of any default. However, A123 failed to meet some of
those conditions and the deal failed shortly before its
Lastly, weaker-than-expected demand for hybrids had adversely
affected the company's bottom line. All these factors led to
bankruptcy filing of the company that is only 11 years old.
The U.S. Department of Energy (D.O.E.) granted nearly $90 billion
for several clean-energy programs in 2009 through the
administration's stimulus package. About $813 million of the
total amount went to energy companies that eventually filed for
bankruptcy, including a $249 million grant to A123 and a loan to
solar panel manufacturer Solyndra.
Under the American Recovery and Reinvestment Act's Electric Drive
Vehicle Battery and Component Manufacturing Initiative, A123 was
supposed to create 38,000 jobs in the U.S., including 5,900 jobs
at its own plants. Johnson Controls also received $299 million
grant under the same program.
Till date, A123 has utilized $132 million of the D.O.E. grant,
which is about half of the total amount. D.O.E. will decide on
the remaining grant later after the new owner of A123 takes
The $18.0 billion company, Johnson Controls, believes the
acquisition of A123 assets will strengthen its existing portfolio
and help maintain the market leading position. The company is
optimistic about the fuel-efficient vehicles market. It is
confident that newer technologies in powertrain and energy
storage solutions will be implemented over the coming years.
Johnson Controls revealed a 15% growth in net income to $441
million in the third quarter of its fiscal year ending September
30, 2012 from $383 million in the comparable quarter of prior
year. On per share basis, adjusted net income grew 14% to 64
cents from 56 cents a year ago. (All excluding non-recurring
However, earnings per share lagged the Zacks Consensus Estimate
by 3 cents. It was lower than the management's expectation as
well, which projected earnings to improve 20% on a year-over-year
basis for the quarter. The company is scheduled to release its
fiscal year results on October 30.