Sale of A123 Systems to Chinese Gets Final U.S. Approval

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A123 logoA123 Systems has received approval from the Committee on Foreign Investment in the United States for the controversial bankruptcy sale of most of its taxpayer-funded technology and assets to China-based Wanxiang, according to a statement released by subsidiary Wanxiang America Corp.

The authorization was the final major hurdle needed to complete the transaction. A123 had been granted $249 million to refurbish two plants in Michigan for battery production, another $30 million as a subcontractor for another stimulus-funded wind energy storage project, and various other grants and contracts by state and federal governments. But A123’s executives, while making sure their own bank accounts were well-taken care of, ran the company into the ground and now Wanxiang will reap whatever technology value is left, for cheap.

“We’re pleased the government has completed its review and provided us with the go-ahead to finalize this transaction,” said Pin Ni, president of Wanxiang America. “The future is bright for A123. It is a company with exceptional talent and potential, and Wanxiang America is committed to its long-term success and the continuance of its U.S. operations.”

Pin is undoubtedly relieved at the decision of the CFIUS, a panel that operates under the Treasury Department. Wanxiang made two runs at ownership of A123, both pre- and post-bankruptcy. Before the October declaration an agreement was in place for Wanxiang to assume control of up to 80 percent of the battery manufacturer for a value north of $400 million, but stipulations – such as keeping A123 listed on NASDAQ and retaining its Department of Energy grants – made the deal unfeasible.

The announcement of a far-less lucrative deal emerged in the bankruptcy announcement, in which Johnson Controls was to buy A123’s electric vehicle battery business for $125 million. But wrangling ensued through the bankruptcy process and Wanxiang never left the picture, and ultimately won the bidding for most of A123’s business for $256.6 million, the only exception being the company’s military contracts that were bought by another U.S. company for a reported $2.25 million.

That gesture brought little comfort to current and retired elected officials and military leaders, who are concerned about the transfer of U.S.-funded intellectual property and military know-how to businesses closely tied to the Communist regime. Most recently a U.S. News & World Report piece by former Reps. Ike Skelton, a Democrat, and Duncan Hunter, a Republican, questioned why a sale of A123’s valuable battery technology to a company owned by one of China’s wealthiest tycoons – Lu Guanqiu, a longtime member of the National People’s Congress – was even a consideration.

“Wanxiang has sought to win approval of the deal by agreeing to split off A123 Systems’ existing military contracts to an American corporation, but that is hardly reassuring,” the former congressmen wrote. “It is A123 Systems’ technology that is the issue, not its contracts. The trade secrets and patents that would be controlled by the Wanxiang Group resulted from a decade of trial and error by some of America’s finest scientists, with much of the work funded by U.S. taxpayers.”

Skelton and Hunter also noted the concerns already expressed by the CFIUS as reason enough to deny the agreement.

“If the (CFIUS) has any doubt about what’s going on here, it need only look at its own annual report to Congress, which it filed last month. For the first time in the history of the committee, it warned that ‘there is likely a coordinated strategy’ underway by unnamed foreign powers ‘to acquire U.S. companies involved in research, development, or production of critical technologies for which the United States is a leading producer.’”

A retired Navy vice admiral, Barry Costello, echoed those apprehensions in his own commentary for Politico. The former commander of the Navy’s Third Fleet noted how A123’s batteries – developed at the Massachusetts Institute of Technology – performed well in extreme weather conditions and how it “serves critical military applications like satellites, communications, unmanned aerial vehicles, high energy lasers, advanced armor and tactical vehicles.” And Costello agreed with Skelton and Hunter that simply selling the military contracts to a U.S.-based company wasn’t good enough.

“…The core technology will still belong to Wanxiang and is potentially available to the Chinese military,” Costello wrote. “Furthermore, that American company will still have to rely on Wanxiang’s manufacturing assets and willingness to share future intellectual property. In other words, the sensitive technology today will be exported, and our future military supply — and troops — will be dependent upon a Chinese entity.”

Two weeks ago Pin Ni, the Wanxiang America Corp. president, went to unusual (for him) measures to attempt to alleviate those concerns. He granted an in-depth interview to Crain’s Chicago Business that portrayed the subsidiary as a company that was launched on “U.S. soil with U.S. sunshine and U.S. water and grew up to be a big apple tree.” Pin is Lu Guanqiu’s son-in-law and married his daughter while working at Wanxiang in China, before he came to America to study at the University of Kentucky. While a student there, the story goes, Lu asked Pin to launch the U.S. Wanxiang, which he did. Since then he and his wife had three children, all American citizens, and in the Crain’s story Pin emphasized his loyalty to democracy and to “protect(ing) the national security of the next generation.”

As for jobs and money that originated with support from U.S. taxpayers, Pin told Crain’s that what is made here stays here. That obviously appeased CFIUS, whose final approval distressed another opponent of the deal that also had expressed disapproval in recent months, the Strategic Materials Advisory Council.

“This disappointing decision represents a 180-degree reversal by the Obama administration in just 8 days, from the President’s Inaugural pledge to no longer ‘cede to other nations’ critical energy technology,” Council co-chair and former Army Acquisition Executive Dean Popps said. “Far from protecting America’s lead, as the President promised…, his administration has just allowed China to leapfrog the world in advanced batteries at the expense of American taxpayers.”

And two senators, John Thune (R-S.D.) and Charles Grassley (R-Iowa), who had also raised many questions during A123’s downfall and bankruptcy, also condemned today’s decision by CFIUS.

“Senator Grassley and I remain concerned about the national security implications of this transaction and have called on CFIUS for a full briefing of the review,” Thune said. “We will continue to press for answers regarding our national security and taxpayer interests.”

“The only thing that’s clear is a foreign-owned company will benefit from the millions of dollars given to A123 through the President’s stimulus package,” Grassley added. “That’s troubling.”

In other words it’s not about the location, but it’s about the ownership, and with billions of dollars already wasted on green schemes that have gone bankrupt or for manufacturing overseas, it’s clear President Obama and his administration have no conscience about these matters.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.