A123 Powering Forward on Its Planned IPO

by: John Petersen

A123 Systems filed another amendment to the registration statement for its proposed IPO on August 19th. With this amendment, A123 is much clearer on its anticipated Federal funding than it was in earlier filings. In addition to discussing the recent DOE announcement that they'll receive $249.1 million in ARRA battery manufacturing grants, they've reduced their estimate of the ATVM guaranteed loans that they'll be eligible for from $1 billion in their July filing to $235 million in the current filing. This most recent number is specific enough to indicate that it reflects ongoing negotiations rather than hopes and aspirations. I hope they get it.

When A123 originally filed their registration statement last summer, the planned offering amount was $175 million. Under the ARRA battery grant program they'll need to come up with $250 million in matching funds. Similarly, under the ATVM loan program they'll need to come up with roughly $60 million in matching funds. If one assumes that all of the matching funds requirements will need to be satisfied by the IPO, they'll need to raise $500 to $700 million in the IPO to meet their cash requirements.

If the IPO goes off for $500 million or more, it will be a watershed event on Wall Street and likely result in a frenzy of activity for other stocks in the energy storage sector. I'm excited because there are still a number of storage sector stocks that trade at objectively low valuations.

In early August I wrote an article titled "Alternative Energy Storage: Cheap Continues to Outperform Cool" which suggested that the companies in the Cheap Emerging and Cheap Sustainable classes still had significant upside potential. I continue to believe that these companies will be solid performers after a major storage sector IPO. I'm less sanguine about the ability of Ener1 (HEV) and Valence (VLNC) to maintain their current market capitalizations in the wake of a major IPO for a company that makes a competitive product and has far stronger business fundamentals.

September should be a very interesting month.