A123 Files for Bankruptcy

After filing a “going concern” letter earlier today with the SEC, U.S. battery maker A123 Systems Inc. (NASDAQ: AONE) later announced that it had sold its automotive business assets to Johnson Controls Inc. (NYSE: JCI) for $125 million. As part of the transaction with Johnson Controls, A123 said that it and all its U.S. subsidiaries filed voluntary bankruptcy petitions to reorganize under Chapter 11 of the bankruptcy code. Subsidiaries located outside the U.S. are not included.

A123 will receive $72.5 million in “debtor in possession” financing from Johnson Controls to support A123 through the sale process.

A123’s implosion has been on our radar screen ever since it filed a “going concern” notice in May. That the company was able to delay its demise this long is something of a miracle.

A123 was battered in March with a field campaign to replace modules and battery packs that may have contained defective cells. At the time the company estimated the replacement cost would be around $55 million. The company later took a $15.2 million inventory charge for the defective batteries it still had not sold.

The company’s advanced lithium-ion battery business for electric vehicles just did not grow fast enough to stem the tide of bad news. A $249 million grant from the federal government to expand its manufacturing capability did nothing to prop up the faltering company. As of July about half those funds remained unspent.

The deal with Johnson Controls is subject to a better offer to purchase any or all of A123’s assets. Prior to the deal with Johnson Controls, A123 had announced a restructuring of its debt with Wanxiang America Corp. for a $75 million loan after the company said it would miss loan payments amounting to about $2.7 million due today.

Shares of A123 have fallen 74% today, to $0.06, a new 52-week low, in a previous 52-week range of $0.19 to $3.91.

Paul Ausick