China’s U.S. shopping spree continues.
On December 9, Chinese auto parts and technology company Wanxiang Group won a bankruptcy auction to acquire lithium-ion battery-maker A123 Systems for $256.6 million, beating out competing bids by Johnson Controls, Siemens AG (SI), and NEC. And on December 10, a consortium of Chinese financial firms agreed to purchase AIG’s aviation-leasing business for $4.26 billion, setting a new record for the value of a single U.S. deal by a Chinese acquirer.
The Wanxiang win follows an earlier unsuccessful bid that foundered in August over U.S. Congressional national security concerns, and was followed by A123’s bankruptcy filing on Oct. 16. The Waltham (Mass.)-based company had supplied its automotive batteries to the U.S. military and had also secured a $249 million federal grant to build factories in the U.S.—both issues raised by U.S. congressional members at the time. Separately, a congressional report released Oct. 8 alleged that China’s two largest telecom equipment manufacturers, Huawei Technologies and ZTE, are a security threat and should be blocked from acquiring U.S. companies.
Now, Wanxiang is excluding all military contracts held by A123 from its planned purchase. Navitas Systems, a Woodridge, Illinois-based company, instead will spend $2.25 million to purchase A123’s government business. The asset sales first must get court approval from a U.S. Bankruptcy judge at a hearing on December 11.
“We think we have structured this transaction to address potential national security concerns expressed during the review of our previous investment agreement with Wanxiang announced in August as well as to address concerns raised by the Department of Energy,” A123 Chief Executive Officer Dave Vieau said in a statement.
Wanxiang has already invested in some two-dozen ailing factories, mainly in the Midwest, and has recently been putting money into clean tech. In May, it closed a deal to invest $1.25 billion in Great Point Energy, a company in Cambridge, Mass., that converts coal to natural gas. The U.S. is a “gold mine” of opportunities for Wanxiang, Pin Ni, the head of U.S. operations and president Wanxiang America, told Bloomberg Businessweek in October. “Any Chinese company that wants to be a global company can’t miss out on the U.S. market.”
These latest deals could cap a record-setting year with Chinese companies spending more than $8 billion to acquire American companies, up almost 50 percent from 2011. Chinese investment has flowed into at least 37 states and most major cities and is diversifying beyond the big energy asset purchases that have defined it in the past, according to Thilo Hanemann, research director at Rhodium Group, a China-focused consultant. Now also popular: entertainment, aluminum production, and financial services, with Chinese companies already supporting close to 30,000 jobs in the U.S. (Not that energy deals are no longer happening: Sinopec is spending $2.5 billion purchasing oil and gas assets of Devon Energy (DVN), for example.)
More China deals are likely imminent. After spending $2.6 billion to purchase Kansas City-based AMC Entertainment, with 4,865 screens in 338 multiplex theaters in the U.S., Beijing-based Wanda Group is now talking to several Hollywood studios about signing a joint production and financing agreement. Also possible: buying an international hotel firm, with $10 billion earmarked for investment into the U.S., Wanda’s chairman Wang Jianlin told Bloomberg Businessweek on December 3.
Wanxiang’s planned purchase, as well as the Chinese consortium’s bid for the AIG aviation leasing arm, must still be reviewed by the Committee on Foreign Investment in the U.S., a multi-agency group headed by the Treasury Department that vets foreign purchasers of U.S. assets for national security concerns. And despite Wanxiang’s decision to exclude government contracts from the A123 purchase, not everyone is convinced that resolves the potential security risks.
“There are no protections, assurances or carve-outs that Wanxiang could offer as part of its offer that would ensure this technology would not benefit Chinese industries and military – to the detriment of those in the United States,” wrote Rep. Marsha Blackburn (R-Tenn.) in a December 7 blog post. “The administration must review and then reject any deal involving Wanxiang. A123 Systems was born out of American innovation, and we must ensure that it stays here – for our national and economic security,” wrote Blackburn, the vice chairman of the House Energy and Commerce Committee.
