A123’s Response to Objections to Chapter 11 Bid Procedure Process
This past weekend, A123 filed a response to various objections that have been raised by Wanxiang, Fisker and others pertaining to A123’s Chapter 11 proceedings, particularly with regard to the proposed bid procedures and process. This blog post attempts to summarize this response to avoid any misinterpretations or potentially misleading reports.
First, to be clear, our response is intended to reinforce A123’s overall objective of creating and maintaining a fair, inclusive and transparent sale process that will promote competitive bidding to maximize the value of A123’s assets to the benefit our stakeholders. We believe our stalking horse asset purchase agreement with Johnson Controls and the proposed bid, auction and sale process (including the timeline) help support this objective.
At a high level, the three primary stated objections assert that:
- The proposed timeline for the bid, auction and sale process is “unreasonably short” and does not allow ample time for other potential bidders to submit proper proposals and/or secure any necessary regulatory approvals.
- The protections in the Johnson Controls stalking horse bid are unfavorable to the value of the A123 estate (for example, the break-up fee included in the asset purchase agreement is deemed as unreasonably high).
- A123 has not clearly defined which of its assets are available for acquisition through the auction process.
Regarding the first objection, A123 believes the contrary to be the case—the proposed sale process (including the timeline) is reasonable and in the best interest of A123’s estate. First, the timeline would provide sufficient time for potential acquirers to compose and submit a bid for A123’s assets. Further, we think that extending the timeline by a substantial amount of time would likely damage the value of A123’s estate.
For instance, a lengthy extension would mean that A123 will continue to spend the cash necessary to maintain ongoing operations, which could translate into a lower recovery for creditors. In addition, the uncertainty about A123’s future created by the Chapter 11 process has increased the risk of losing employees, many of who are seeking employment at other companies. Given that A123—and potential bidders that have expressed interest in acquiring our assets—considers our employee base to be a critical resource and a competitive differentiator, this trend (which is likely to continue and even escalate as more time goes by) would very likely inhibit A123’s ability to maximize the value recovered at the sale.
In response to the second objection, A123 carefully considered the bid protections (which Johnson Controls required before signing the asset purchase agreement), and ultimately we believe that they are fair and reasonable under the circumstances. The asset purchase agreement with Johnson Controls constitutes the best offer we have received and it is the only bid that does not contain what we deem to be “materially unsatisfied” closing conditions, which gives us confidence that the sale of the company’s automotive business to Johnson Controls could be completed within the necessary timeline.
On the third objection, A123 believes that we have adequately identified the company’s assets that we intend to sell at the forthcoming auction. In the proposed bidding procedures, we clearly state that any and all of our assets, including our automotive business as well as our grid, commercial, government and other businesses, are subject to sale at the auction. While we cannot speculate on what companies will ultimately bid on which components of the A123 business, we believe we have made it clear as to how interested parties can structure their proposals.
A few other objections are addressed in our response, but to reiterate, our goal is to promote a sale process that maximizes the value of our assets and benefit to our stakeholders. We continue to be encouraged by the significant level of interest in our automotive, grid, commercial, government and other businesses, and we are confident that benefits of a fair, inclusive and transparent sale process will be reflected in the bids we receive for these assets.