Bidding war for bankrupt A123 looming as Wanxiang Group of China continues its pursuit

Lawyers for A123 System Inc.’s one-time Chinese partner appeared in bankruptcy court Thursday to reaffirm Wanxiang Group’s interest in buying the Waltham battery company, potentially setting up a bidding war for the firm.

In August, the Chinese auto parts conglomerate agreed to invest up to $465 million in A123, with the potential of acquiring up to 80 percent of the company. Then A123 filed for bankruptcy, and simultaneously announced that it planned to sell its assets to Johnson Controls Inc., of Milwaukee. That transaction, which requires court approval, is valued at $125 million.

Just hours after the bankruptcy filing, Pin Ni, the head of Wanxiang’s North American operations, indicated his company intended to continue its pursuit of A123.

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“Our interest and goal remain the same,” he said Tuesday.

Ni did not respond to a request for comment Thursday. Lawyers for Wanxiang also could not be reached.

Wanxiang’s deal with A123 sparked sharp criticism from congressional Republicans, who raised concerns about China acquiring advanced technology developed with the help of US taxpayer money. A123 was awarded nearly $250 million in federal stimulus money, and received millions more in loans and other support from Massachusetts and Michigan, where it built two plants to manufacture batteries for electric and hybrid vehicles.

The deal with Wanxiang required several approvals from US and Chinese governments.

Johnson Controls, meanwhile, has agreed to provide A123 with $72.5 million in “debtor in possession” financing which would allow the company to keep operating during the bankruptcy proceedings. At Thursday’s hearing, Judge Kevin Carey ruled that A123 may use $15.5 million of those funds on an interim basis, said Michael Freitag, an A123 spokesman.

A123, hurt by slower-than-expected demand for electric and hybrid vehicles and a costly battery recall, had long been on shaky ground. The company had warned in recent filings to the federal Securities and Exchange Commission that it was in danger of running out of cash.

The company’s troubles seem to have spooked some investors, who have been dropping the company’s stock in recent weeks. Most notably, North Bridge Venture Partners—a longtime A123 investor with a representative on the battery company’s board—had disposed of all of its A123 stock by Sept. 10.

That representative, Jeffrey McCarthy, resigned from A123’s board last week, financial filings show. He did not respond to emails seeking comment.