By Tom Hals
WILMINGTON, Delaware (Reuters) - A U.S. and a Chinese auto parts maker will face each other on December 6 in an auction to buy A123 Systems Inc, a bankrupt maker of batteries for electric cars that was partly funded by the U.S. government.
Wanxiang Group Corp, whose rescue deal for A123 unraveled earlier this year, will square off against Johnson Controls Inc
The sale has already drawn scrutiny from U.S. politicians because A123, whose lithium ion batteries are also used for power grid storage, has received $130 million in grant money from the U.S. Department of Energy as part of a program to support battery production.
A123 entered bankruptcy last month with an agreed bid of $125 million for its automotive business from Johnson Controls. That will serve as an initial bid that is meant to encourage other potential buyers to come forward. The money raised in the auction will repay A123's creditors.
Wanxiang told Delaware Bankruptcy Court Judge Kevin Carey on Thursday that it had sent A123 a confidential proposed bid on Wednesday night for the entire business.
The Chinese company's bid will need approval from the Committee on Foreign Investment in the United States, and two Republican senators have asked the committee to review its application.
Wanxiang had sought to have the auction pushed further into December, giving it more time to obtain regulatory clearance, while Johnson Controls originally wanted the auction on November 17.
A123's investment banker told the court on Thursday that he expected other bidders. "This is not a two-horse race. This is a 10-horse race," said Timothy Pohl of Lazard Freres & Co.
While Pohl declined to name potential bidders, an attorney for NEC said the company was interested in the nonautomotive parts of A123. Siemens' attorney did not say what the German company would bid for.
A123's lawyer, Jan Baker of Latham & Watkins, told the court the sooner the company finds a buyer, the better. He said employees were leaving the company, which could potentially undermine the battery maker's value.
Carey approved incentive and retention plans for A123 employees over the objection of the U.S. Trustee, an agent of the Department of the Justice who oversees bankruptcies.
A123, based in Waltham, Massachusetts, supplies batteries for Fisker Automotive's Karma, a plug-in hybrid, and the Chevrolet Spark EV, which will be introduced next year by General Motors Co
A123 ran into problems last year after Fisker Automotive cut battery orders for the Karma in October 2011. This year, A123 had to recall battery packs made for Fisker, which made up 26 percent of A123's revenue in 2011.
The battery maker struck a $465 million rescue deal with Wanxiang that was meant to keep it out of bankruptcy, but that deal came apart when A123 failed to meet certain conditions.
The case is A123 Systems Inc, Delaware Bankruptcy Court, No. 12-12859.
(Editing by Matthew Lewis)