Reuters: Global Markets: Battery maker A123 to raise about $39 million

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Battery maker A123 to raise about $39 million Jul 6th 2012, 14:50 DETROIT | Fri Jul 6, 2012 10:50am EDT DETROIT (Reuters) - A123 Systems Inc (AONE.O) said on Friday it will raise about $39 million in two moves meant to give the lithium-ion battery maker more breathing room as it burns through cash. The company, which previously raised concerns about its viability due to expected steep losses over the next several quarters, said it will raise about $9 million by selling shares and get access to another $30 million after satisfying conditions related to senior convertible notes. Shares in A123 were down 7.7 percent in morning trading. "It's a step in the right direction, but there's still a lot of work to be done," Said Needham analyst Michael Lew, who has a "hold" rating on A123 shares. "Any cash they can raise will help buy them some more time, but what we don't know is where the other projects are, how fast they can accelerate them," he added. A123, which developed as a start-up at the Massachusetts Institute of Technology, previously said it was looking to raise additional cash and was exploring "other strategic alternatives." The Waltham, Massachusetts-based company said it could tap the capital markets for funds. Stifel Nicolaus previously said A123 would need to raise an additional $75 million by the fourth quarter of 2012 and another $200 million in 2013 to fund its ongoing operations. A123, which received a $249 million grant from the Obama administration as part of a program to develop advanced batteries, has said it expects to achieve positive quarterly gross profit margins next year instead of by the end of 2012. It expects positive adjusted operating earnings on a quarterly basis next year as well. A123's losses stem from its recall of defective batteries built at its Livonia, Michigan, plant. The flaw came to light earlier this year when a Fisker Karma plug-in hybrid with an A123 battery failed during a test by Consumer Reports magazine. The repairs will cost nearly $67 million and force A123 to rebuild its inventory. In addition to Fisker, A123 makes batteries for the BMW (BMWG.DE) hybrid 3- and 5-Series cars, and General Motors Co's (GM.N) all-electric Chevrolet Spark due in 2013. China's SAIC Motor Corp (600104.SS) and India's Tata Motors (TAMO.NS) also are customers. A123 said earlier this month it would hire up to 400 people over the next several months in response to increased business in its commercial transportation and grid operations. A123's federal grant, which has $120 million in remaining proceeds, has been extended by two years to December 2014. The company also previously said it qualifies for tax credits from the state of Michigan totaling $100 million, payable in four annual installments of $25 million starting late next year. Needham's Lew said A123 needs to show progress with its existing contracts. "If we see a ramp-up of programs, that will obviously help them," he said. "But if it's still pretty sluggish out there obviously it's going to be a rough ride." A123 said on Friday it will raise about $9 million by selling about 7.7 million shares and an unspecified number of warrants to institutional investors. The shares will be sold at $1.30 each. The company, which has about 147 million shares outstanding, said it expects to close the offering on or about July 10. Separately, A123 expects to have access to $30 million of cash as it has satisfied the conditions for the release of the money currently held as restricted cash. Holders of its 6 percent senior convertible notes are expected to issue release documentation for the $30 million around July 6. (Reporting by Ben Klayman in Detroit and Bijoy Koyitty in Bangalore; Editing by Sreejiraj Eluvangal and M.D. Golan) Link this Share this Digg this Email Reprints

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