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A123 signs potential $465m deal with Chinese

By web

Section: News

August 24, 2012

A123 Systems, a Waltham based technology company, has merged in a $465 million dollar deal with Chinese company Wanxiang Group, the company announced last week.

The company creates lithium-ion batteries for electric powered cars and motors. Wanxiang is an automotive components manufacturer, and one of the largest companies in China not owned by the government.

A struggling company, A123 reported nearly an $83 million loss for the second quarter, according to The Boston Globe. It’s stock is currently worth 36 cents, enough to warrant a warning for the Nasdaq Stock market. Companies whose stock falls under $1 for more than 30 consecutive business days face consequences from Nasdaq, including the threat of removal from the exchange or delegation to a smaller exchange. Unless the stock, previously valued at $25, rises by February, A123 faces severe consequences.

On Aug. 8, A123 signed a non-binding memorandum of understanding with Wanxiang. Once the deal was announced as successful on Aug. 16, Wanxiang made a $25 million injection. Wanxiang is projected to invest $465 million as time progresses. As company CEO David Vieau, said in a press release, “The significant commitment of capital from Wanxiang would help strengthen A123’s financial position, and by leveraging Wanxiang’s global capabilities, we expect to see increased demand for our products.”

Vieau believes that “a strategic agreement with Wanxiang would help enhance our competitive position in the global marketplace, especially in China.” The demand for advanced batteries in China is projected to double by 2016 to $9.2 billion. The government repeatedly encourages its citizens to purchase electric bikes and cars.

A123’s batteries would be put to good use not only in cars, but also through Chinese wind and solar projects. Since the Chinese government is a difficult entity to directly sell products to, by joining Wanxiang A123 may hold an advantage. In its new position, partnered with a Chinese company, it should be able to sell directly to the government without the normal struggles a foreign company faces.

As stated by Weiding Lu, CEO of Wanxiang Group, the company plans to “build on the foundation A123 has established in the U.S. and help expand the company’s capabilities both domestically and internationally, which we believe would create long term value to the customers, investors and other stakeholders of both companies.” Weiding does house a large number of employees in the United States, and Vieau insists that “Wanxiang has demonstrated its commitment to partnering with and investing in U.S. companies, so we also believe that we will continue to expand on our strong manufacturing and systems engineering capabilities in Michigan and Massachusetts.”

A123 believes its financial struggles arise not from poor products, but from a lack of demand in the United States. “We consider today’s announcement to be a strong validation of A123’s technology and the company’s ability to compete in high-growth markets,” Vieau said in the press release.

 

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