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JCI to buy A123 battery business

By: Dustin Walsh

October 17, 2012

GLENDALE, WIS. (Oct. 17, 5:40 a.m. ET) — Lithium-ion battery maker A123 Systems Inc. filed for Chapter 11 bankruptcy protection today in U.S. Bankruptcy Court in Delaware and said Johnson Controls Inc. has agreed to acquire its automotive battery business for $125 million.

To facilitate the purchase, JCI will provide A123 $72.5 million to continue operations through the bankruptcy process. Under the deal, the Waltham, Mass-based A123 will pay to license its own grid, commercial and government technologies from JCI.

JCI will acquire A123's plants in Livonia and Romulus, Mich., which employ roughly 700, as part of the deal. It's unclear what will happen with those positions. Glendale-based Johnson Controls already operates a lithium-ion plant in Holland, Mich.

JCI also will also acquire A123's cathode powder plant in China and its stake in Shanghai Advanced Traction Battery Systems Co., a joint venture with Shanghai Automotive.

In the Chapter 11 filing, A123 said it owes millions to hundreds of debtors, including the cities of Livonia, Novi and Romulus. A123 holds $376 million in debts with about $459.8 million in assets. Its largest debtor is U.S. Bank, which A123 owes $142.8 million.

"We believe the asset purchase agreement with Johnson Controls, coupled with a Chapter 11 filing, is in the best interests of A123 and its stakeholders at this time," A123 CEO David Vieau said in the statement.

"As we move through this transaction process, we expect to continue operating and working with customers and suppliers," he added.

The filing comes one day after A123 filed a document with the U.S. Securities and Exchange Commission stating that it would default today on payment for $143.8 million of notes that expire in 2016.

"The company may not have sufficient cash to fund operations and may need to seek the protections provided under the U.S. Bankruptcy Code," A123 said in the filing. "No assurance can be given that the company will be able to avoid restructuring, reorganization, or a bankruptcy filing."

A123 received a $249.1 million federal grant in 2009 to build its Livonia plant but has struggled since, posting 14 straight quarterly losses.

Richard Kwas, senior analyst for Well Fargo Securities LLC, said in an analyst note: "In our view, the transaction makes sense for JCI, as it will broaden the company's lithium-ion technology offering and enhances its scale. Longer term, the transaction should further solidify JCI's position in advanced batteries."