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Johnson Controls changes tack in A123 Systems bankruptcy after Wanxiang opposition

The plan for A123 Systems to sell its assets to Johnson Controls met opposition from Wanxiang and Fisker Automotive, and now JCI is changing its approach and is offering to buy even more of A123's business.


Battery maker A123 Systems has had a rough year of battery pack failures that affected customers such as Fisker Automotive. That led to an expensive recall campaign, derailing the company's financial position, and subsequently a bankruptcy filing two weeks ago. On Friday, Fisker Automotive filed a motion seeking to delay the bankruptcy of A123 Systems, and the assets auction. Following that filing, according to the Associated Press, Johnson Controls has agreed to step away from its position as debtor-in-possession of A123 Systems.

In August, A123 Systems agreed to a buyout deal with Chinese autoparts maker Wanxiang. This followed a warning from A123 that it might be unable to continue as a going concern, a warning that became reality when A123 Systems filed for chapter 11 bankruptcy. However that buyout deal led to political backlash over the worry that technology developments that received funding from Federal grants and loans would end up owned by a Chinese-owned business. A123's bankruptcy announcement was accompanied by an announced deal with Johnson Controls where that company, rather than Wanxiang, would be buying A123. But then Wanxiang countered that they were still interested in buying the parts of A123 Systems which Johnson Controls was not buying.

In the meantime Fisker Automotive's motion called into question the whole process, calling it a hurried sale, objecting to the debtor-in-possession role of Johnson Controls, and stating that the agreements between Fisker and A123 Systems amount to unsecured claims that make A123 a debtor of Fisker.

Following all this Johnson Controls has agreed to step away from the position of debtor-in-position, that its $125 million offer still stands, and that it now plans to expand the offer to include other parts of A123's business including the company's government business and military contracts. JCI plans to maintain its "stalking horse" position. The "stalking horse bid" is an initial bid in a court-supervised aucation of a business, that allows the company selling assets under bankruptcy (in this case A123 Systems) to avoid low-ball bids for those assets.

"Johnson Controls has chosen not to be the debtor-in-possession lender during A123's bankruptcy process to avoid potential delays," Johnson Controls said in a statement.

The AP report says JCI is taking this step to avoid a legal battle with Wanxiang, who is challenging JCI's role as the primary bidder for A123 Systems.

A Reuters report says that A123 Systems is seeking approval for a replacement loan from Wanxiang, and that JCI is withdrawing its commitment to loan A123 money.