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NEWS ANALYSIS: Purchase of A123 Battery Company Highlights China's Rapidly Growing Direct Investment in U.S. Industries, Homes
From the above referenced story: "Bankrupt battery maker A123 Systems Inc. on Sunday said it will sell most of its assets to the U.S. arm of Chinese auto parts conglomerate Wanxiang Group Corp. for $256.6 million.
Wanxiang America Corp. won an auction conducted under the supervision of the U.S. Bankruptcy Court for the District of Delaware.
A123's government business will be sold separately, for $2.25 million, to Navitas Systems, of Woodridge, Ill.
A hearing seeking the necessary court approval of the sale is scheduled for Tuesday, Dec. 11. The deal must also be okayed by the Committee for Foreign Investment in the United States, a federal inter-agency committee that reviews sales of U.S. companies to foreign owners. The company has about 2,000 employees.
Waltham, Mass.-based A123, which makes lithium ion batteries for electric cars, grid storage and commercial and military applications, was awarded a $249 million grant from the Department of Energy in August 2009 to help it build U.S. factories. About $130 million of that grant was delivered before the company fell victim to the lackluster market for electric cars.
In September 2009, it also held a successful initial public offering, raising $380 million as its stock gained more than 50 percent, to close over $20. Shares closed at 13 cents the session before it filed for bankruptcy protection.
Despite opening several plants, developing highly-touted new technology, including a battery that could operate in extreme heat or cold, and signing deals with top automakers like General Motors, Chrysler and India's Tata Motors, the company never posted a profit. In August, it reported an $83 million loss for the second quarter. At the same time, A123 said it reached a financing deal with Wanxiang Group for up to $450 million to help it stay afloat.
But still short of cash, the company sought bankruptcy protection in October, and said it would sell its automotive unit to Milwaukee-based auto parts marker Johnson Controls Inc. for $125 million.
Wanxiang challenged [Milwaukee, WI-based] Johnson Controls' role as the primary bidder, and stepped in to provide bankruptcy financing to when the U.S. company declined to do so. In a statement Sunday, Johnson Controls said it officially withdrew from the auction when it declined to match Wanxiang's bid, because the price was higher than the value of the assets to its operations.
The Justice Department has said A123 needs the government's consent to sell its assets, maintaining in Bankruptcy Court that any sale must protect the government's interests because of the 2009 grant.
DOJ maintained that its assets included the roughly $120 million that wasn't handed over yet under the grant, A123's cost-sharing obligations under federal assistance programs, and property and equipment purchased with government funds.
A123 said Sunday that the terms of the deal will see Wanxiang acquire its automotive, grid and commercial business assets, including all technology, products, customer contracts and U.S. facilities in Michigan, Massachusetts and Missouri. It will also get A123's cathode powder manufacturing operations in China and its equity interest in Shanghai Advanced Traction Battery Systems Co., A123's joint venture with Shanghai Automotive.
Excluded from the agreement is A123's Ann Arbor, Mich.-based government business, including all U.S. military contracts, which would be acquired for $2.25 million by Navitas Systems, a company that makes energy storage products for commercial, industrial and government agencies.
"We think we have structured this transaction to address potential national security concerns expressed during the review of our previous investment agreement with Wanxiang announced in August, as well as to address concerns raised by the Department of Energy," said A123 CEO Dave Vieau in a statement. "We believe this transaction balances those risks with A123's obligation to act in the best interest of our creditors."
If the deals are approved by the court, the shares will be worthless. That's because proceeds from the sale of the two parts of A123 would be less than the company owes its creditors.
Based in Chicago, Wanxiang America has been in the automotive and industrial markets in the U.S. since 1994 and currently has more than 3,000 U.S. employees. It is a subsidiary of Wanxiang Group, China's largest automotive components manufacturer and one of China's largest non-state-owned companies.
"We plan to build on the engineering and manufacturing capabilities that A123 has established in the U.S. and we are committed to making the long-term investments necessary for A123 to be successful," said Pin Ni, president of Wanxiang America.
The purchase of A123 Systems is just the latest example of China buying U.S. assets, instead of just buying stock in them.
Bloomberg BusinessWeek notes the purchase of A123, plus other American companies: http://www.businessweek.com/articles/2012-12-10/china-nabs-airplanes-and-batteries-in-latest-u-dot-s-dot-shopping
The story notes that Wanxiang -- the successful bidder of A123 Systems -- has "invested in some two dozen ailing factories, mainly in the Midwest, and has recently been putting money into cleantech. In May, it closed a deal to invest $1.25 billion in Great Point Energy, a company in Cambridge, Mass., that converts coal to natural gas. The U.S. is a “gold mine” of opportunities for Wanxiang, Pin Ni, the head of U.S. operations and president of Wanxiang America, told Bloomberg Businessweek in October. 'Any Chinese company that wants to be a global company can’t miss out on the U.S. market.'”
From the Bloomberg Businessweek story: "These latest deals could cap a record-setting year with Chinese companies spending more than $8 billion to acquire American companies, up almost 50 percent from 2011. Chinese investment has flowed into at least 37 states and most major cities and is diversifying beyond the big energy asset purchases that have defined it in the past, according to Thilo Hanemann, research director at Rhodium Group, a China-focused consultant. Now also popular: entertainment, aluminum production, and financial services, with Chinese companies already supporting close to 30,000 jobs in the U.S. (Not that energy deals are no longer happening: Sinopec (SNP) is spending $2.5 billion purchasing oil and gas assets ofDevon Energy (DVN), for example.)
"More China deals are likely imminent. After spending $2.6 billion to purchase Kansas City (Mo.)-based AMC Entertainment, with 4,865 screens in 338 multiplex theaters in the U.S., Beijing-based Wanda Group is now talking to several Hollywood studios about signing a joint production and financing agreement. Also possible: buying an international hotel firm, with $10 billionearmarked for investment in the U.S., Wanda’s chairman, Wang Jianlin, told Bloomberg Businessweek on Dec. 3."
In the world of real estate, especially residential real estate, the Chinese are big players, too, according to the National Association of Realtors:
The 2012 Profile of International Home Buying Activity is based on a survey conducted annually since 2007 by the National Association of Realtors (NAR). The survey was conducted in April 2012 and collected information from Realtors® on purchases of U.S. residential real estate by international clients for the 12 months ending March 20121. The term international client refers to two types of purchasers of properties.
· Type A: Foreign clients with permanent residences outside the U.S. These clients typically purchase property for investments, vacations, or visits of less than six months to the U.S.
· Type B: Clients who are recent immigrants (less than two years) or temporary visa holders residing for more than six months in the U.S. for professional, educational, or other reasons.
For the 12 months ending March 2012, international clients accounted for 4.8 percent of total U.S. sales divided evenly between Type A and Type B clients.
Total U.S. Market: Estimated at $928.2 Billion Estimated International Sales Total $82.5 Billion
Total sales volume to international clients is estimated at $82.5 Billion for the 12 months ending March 2012, up from an estimated $66.4 Billion for the 12 months ending March 20112.
More from the NAR report:
The international home sales market in the U.S. is concentrated in terms of purchasers’ home country and preferred destination. International buyers came from nearly all over the globe, but five countries (Canada, China (PRC including Hong Kong), Mexico, India, and the United Kingdom) accounted for 55 percent of transactions in the recent study. There is international activity throughout the country. Four states (Arizona, California, Florida, and Texas) accounted for 51 percent of the purchasers.
Proximity to the home country, the presence of relatives, friends, and associates, the convenience of air transportation, and climate and location appear to be important considerations to prospective buyers. For example, the East Coast attracts Europeans. The West Coast is attractive to Asian purchasers. Florida appears to be attractive to South Americans as well as Europeans and Canadians. Within markets in an individual state, it is not unusual to find concentrations of people grouped by nationality. One could speculate that word-of-mouth and shared experiences influence the purchase.