A123 considers cash infusion from Chinese manufacturer

A123 Systems, a battery maker based in Waltham, Massachusetts, reported a second-quarter loss of $82.9 million, or 53 percent of revenue, from the second quarter of 2011. Given the company’s precarious financial position, directors announced that A123 is considering a non-binding memorandum of understanding, or MOU, with a Chinese-based auto parts manufacturer, Wanxiang Group Corp. This would provide A123 with $450 million in cash if the company complies with certain provisions. While not technically a business sale, the MOU would give the Chinese company great control over A123’s operations and a foothold in the business of supplying energy grids with components — one of the largest aspects of A123’s production.

Memoranda of understanding, mergers, and business sales may seem confusing to those who do not deal in business law, but there are differences in the amount of control the larger company has over the smaller in each scenario. In the case of A123, the MOU would require the company to perform certain functions in keeping with the lender’s standards and allow the Chinese manufacturer access to certain trade information that may currently be solely owned by A123. In return, the company may get the cash it needs to stay afloat.

In any type of business sale, merger or acquisition, it is very important for both parties to have sound legal representation. An experienced lawyer who is well-versed in various aspects of business, including taxation issues and contractual law can be a big asset. Failure to get sound advice could result in contract problems, disputes and ultimately a much smaller return for the company that is selling.

Source: Worcester Business Journal, “A123 Hopes for Investment Deal as Losses Widen,” Matt Pilon, August 8, 2012