Johnson Controls Inc.
) now has a new contestant in its attempt to buy the bankrupt
automotive operations of Waltham, Massachusetts based lithium-ion
battery maker A123 Systems Inc. China's auto parts conglomerate
Wanxiang Group Corp. has got its awaited approval by the Chinese
Commerce Ministry to buy all the assets of A123.
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A couple of months back, Wanxiang Group revealed that it will
place superior bid for A123 compared to what Johnson Controls has
offered ($125 million) as the deal with the latter is subject to
a court-supervised auction. 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.
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 flows 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.
A123 was entitled to receive $249 million grant from the U.S.
Department of Energy (D.O.E.) under the $90 billion grant for
several clean-energy programs in 2009. 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 control.
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, a Zacks #5 Rank (Strong Sell) company, reported
adjusted earnings per share of 77 cents for the fourth quarter of
its fiscal year ended September 30, 2012, ahead of the Zacks
Consensus Estimate of 75 cents and up 1.3% from 76 cents a year
ago. Earnings were in line with management's expectation of 0% to
5% growth in the quarter.
Management believed earnings had favorable impacts from the
improved profitability in Building Efficiency, Power Solutions
and North America Automotive Experience businesses. However,
these were offset by weak performance in automotive and buildings
markets in Europe.
The company's revenues for the quarter decreased 3.6% to $10.4
billion. It was marginally lower than the Zacks Consensus
Estimate of $10.8 billion. However, excluding the impact of
foreign exchange, revenues grew by 1% in the quarter.
The company has not provided any specific guidance for fiscal
2013. It expects that earnings in the first half of fiscal 2013
will be lower than the year ago period due to weak end markets
and adverse effects of foreign currency. However, it anticipates
earnings will be higher in the second half of fiscal 2013
compared to the year-ago period, driven by positive impact from
restructuring activities. Meanwhile, earnings in fiscal 2013 are
expected to be flat or a bit higher than fiscal 2012.
Johnson Controls is a supplier of automotive interiors,
batteries, and other control equipment. Its main competitors
Magna International Inc.
) in the Automotive Experience segment,
Honeywell International Inc.
) in the Building Efficiency segment and
) in the Power Solutions segment.