Looks Like Subsidized A123 Execs Want to Cash In
As taxpayer-backed electric car battery-maker A123 Systems reported a $125 million 1st quarter loss this week and its stock price dipped to near its 52-week low, the executives that were just awarded big raises and parachutes look like they want to cash in and sell the company.
Officials with the Massachusetts-based manufacturer, which received a $249.1 million grant from the Department of Energy but this week said the ability for the company to continue is a “going concern,” also announced they retained an outside adviser for “evaluation of strategic alternatives.” Translation: they’re looking to sell. If they are successful, A123 President David Vieau and his colleagues stand to reap a windfall even after they laid off 125 factory workers ("Green jobs") in November.
The move follows the actions its directors took in February, after Fisker Automotive – A123’s top customer and a company in which it was invested – announced that DOE had cut off its $529 million loan award. A day after A123’s stock dropped from $2.65 to $2.285, the company’s compensation committee bumped the base salaries of two vice presidents and its CFO by an average of 36 percent. Also in that February compensation meeting, Vieau received 400,000 additional restricted stock units while four other top A123 executives collectively received 810,000 additional stock units. Perhaps most significantly, the remuneration terms of its top officers were increased should control of the company change hands, which included: accelerated vesting of unvested stock option and restricted stock awards; increase in payment of base salary from 12 months to 18 months; payout of target bonuses for the year if terminated; and an increase in continuation of benefits from 12 months to 18 months.
Since then A123 reported huge losses for 2011 and its shares dipped as low as 82 cents – it closed yesterday at 88 cents. Investors have filed a class-action lawsuit claiming that A123 executives inadequately disclosed information about two recalls of its batteries and related warranty payments of $55 million for fixes. An incident in which Consumer Reports’ testing of a Fisker Karma with a flawed A123 battery, which caused the vehicle to shut down, drew widespread scorn. In another accident, an A123 battery caused an explosion at a General Motors test facility.
Besides the $249.1 million DOE grant, A123 received nearly $30 million for a wind energy storage project as a subcontractor for another federal grantee. Also, A123’s batteries were used as part of a $5 million DOE stimulus project with Detroit Edison Company. A123 also received grants and tax credits from the State of Michigan – where it established its two manufacturing plants – that could total more than $135 million.
Recently A123 reported its first-quarter woes to DOE, in the best bureaucratic lingo it could muster: “Manufacturing activities were impacted as process improvement efforts attempted to remedy operational challenges and quality assurance issues. As a result of these activities and weakening market demand production levels were negatively impacted.” A day after the executives’ compensation boost, Forbes wondered if A123 and Fisker would become “Two Solyndras for the Price of One.” And Theodore O’Neill of Wunderlich Securities wrote in a February research article that A123 faced “a doomsday” scenario.
With the latest move to seek “strategic” advice, the self-serving overpaid mis-managers at A123 may soon get a hefty payout just to go away. In the meantime the company is trying to raise $50 million from private sources and is trying to find another lender with fewer limitations on a line of credit than what they currently have, according to the Wall Street Journal.
“Saying that they’re willing to look at all options may give investors something different to think about,” Amir Rozwadowski, an analyst at Barclays Plc in New York, told Bloomberg. “The announcement may be shifting the conversation to ‘what is the inherent value of this company’s assets?’”
Anybody who overpays for this phony “technology of the future” company will get what they deserve, but unfortunately current management and taxpayers won’t.
Paul Chesser is an associate fellow for the National Legal and Policy Center.