It Can Be Done: Case Studies of Successful Acquisitions Out of Bankr...

Posted by Leonard P. Goldberger, Esq. on April 4, 2015

Leonard P. Goldberger, Esquire[1]
Stevens & Lee, P.C.

This is the second of three articles that deal with acquisitions of financially-distressed U.S. businesses and assets by foreign investors. The first article discussed the strategic bases for why making acquisitions out of U.S. bankruptcy cases makes good sense for foreign investors. This one demonstrates that all of this can be effectively accomplished, and provides three recent examples of successful acquisitions of complex businesses out of U.S. bankruptcy cases by Chinese investors.[2] These examples suggest that foreign investors are becoming increasingly more skilled at making acquisitions of strategically-valuable assets out of U.S. bankruptcy cases. My estimate is that by about 2020 foreign investors will play a significant role in the U.S. distressed marketplace, especially as small-to-medium-sized foreign investors are guided by prior successes of larger companies (and, in the case of the Chinese, state-owned enterprises), and their decision makers feel more comfortable about participating in the U.S. bankruptcy process.


1. A123 Systems

In my view, this was the first big success story for the acquisition of a financially-distressed company by a Chinese investor out of a U.S. bankruptcy case. In retrospect, and considering many previous (and expensive) missteps by other foreign investors attempting to participate in the U.S. bankruptcy marketplace, it may be viewed as the template for “doing it right.”

Prior to its bankruptcy, A123 Systems, Inc. developed (with the help of U.S. government stimulus funding) a highly advanced, lithium-ion battery technology for use in electric vehicles. The technology had both consumer automotive and military applications. A123 Systems experienced operational difficulties and, in fall 2012, defaulted on its note payments, following which its Chapter 11 case in Delaware was filed.

In the months leading up to the bankruptcy, A123 Systems had negotiated with Wanxiang America Corp., the U.S. subsidiary of Wanxiang Group Corp., a leading Chinese automotive parts manufacturer, to be the “stalking horse” buyer in the bankruptcy case that it saw coming. On the eve of the bankruptcy filing, however, A123 Systems dumped Wanxiang and went with Johnson Controls, a U.S. company, as the stalking horse buyer. After much wrangling, Wanxiang clawed its way back into the bankruptcy case and, eventually, an auction sale was forced.

At the auction, Wanxiang was the successful bidder. It agreed to pay $256 million for the automotive battery technology assets. (Wanxiang wisely carved out from the sale any military-related business and assets). Indeed, Wanxiang’s bid was over $125 million more than that of Johnson Controls. Wanxiang’s bid, however, was subject to receiving a favorable review from the Committee on Foreign Investments in the United States (“CFIUS”), the federal inter-agency committee chaired by the Secretary of the Treasury that reviews for potential threats to U.S. national security those transactions that propose to transfer ownership of U.S. businesses to foreign control.

Because the A123 Systems’ technology has been developed, in part, with U.S. government stimulus funds, the sale took on a political dimension that gave Johnson Controls a second bite at the apple. Although it was seriously outbid, it attempted to defeat the sale to Wanxiang by hiring a lobbyist to oppose U.S. government approval of the sale by exploiting the anti-Chinese sentiment in Washington at the time.

The official committee of unsecured creditors in the A123 Systems bankruptcy case reacted quickly in order to save the $125 million differential between the two competing bids. The unsecured creditors’ committee sought, and obtained, bankruptcy court approval to use bankruptcy estate funds to hire its own Washington lobbyist in order to counter Johnson Controls’ attempts to game the political opposition to the sale within the U.S. government. The fact that Wanxiang had carved out from the sale any military-related application of its technology limited the CFIUS review to the transfer of the consumer automotive battery technology aspect of the business. This limitation, as well as the unsecured creditors’ committee’s lobbying effort, was apparently sufficient to obtain favorable CFIUS review; and that condition to consummating the sale to Wanxiang was finally satisfied. As a result, the sale to Wanxiang finally closed, and the unsecured creditors were able to benefit by the substantially higher price that Wanxiang was willing to pay. This case demonstrated that a foreign investor was able to successfully navigate both the legal and political obstacles in order to achieve its investment objectives in the U.S. distressed marketplace.

2. Fisker Automotive

Just about a year later, Wanxiang was back again in the Delaware bankruptcy court. This time, it bought the whole car: Fisker Automotive, Inc. After another auction in bankruptcy court, Wanxiang was the successful bidder for the assets of Fisker Automotive, the manufacturer of the Karma luxury, plug-in hybrid electric sports car. Not coincidentally, the Fisker sports car was powered by the A123 Systems’ lithium-ion electric battery.

Production of the Fisker sports car, developed by Henrik Fisker, a former BMW designer, had been continuously plagued by problems: cost overruns; technical problems (including, ironically, some with the A123 Systems battery itself); safety recalls; and shipments of cars lost to Hurricane Sandy. As a result, it had to cease production in order to conserve cash. Fisker filed bankruptcy in November, 2013, and planned to sell its assets to Hybrid Tech Holdings, LLC, an entity controlled by Richard Li, a Hong Kong billionaire investor. Like A123 Systems, Fisker was also funded by U.S. government stimulus loans that were made to assist in the development of clean fuel technologies. Pre-petition, however, Hybrid Tech purchased the U.S. Department of Energy’s $168 million loan for about $25 million. Once its bankruptcy case was filed, Fisker moved to allow Hybrid Tech to acquire its assets by credit bidding the liens securing its loans. The Hybrid Tech acquisition, however, would have resulted in a dividend to unsecured creditors of only $500,000.

Fisker’s creditors opposed the proposed Hybrid Tech acquisition and demanded an auction, which created an opportunity for Wanxiang to submit a competing bid. In connection with that litigation, the bankruptcy court issued a controversial ruling limiting Hybrid Tech’s ability to credit bid to the amount it actually paid for the loan that it bought from the Department of Energy (more on this in other Inforuptcy articles). Accordingly, the Fisker assets were put up for auction with the support of the unsecured creditors. At the auction, Hybrid Tech’s initial bid was $55 million. After 19 rounds of bidding, Wanxiang emerged as the successful purchaser with a bid valued at $149.2 million ($126.2 million cash; $8 million of assumed disabilities; and a contribution of 20% of the common equity in a Wanxiang affiliate paid to Fisker’s creditors). Fisker’s plan, which was confirmed in July 2014, with the overwhelming support of creditors, provided $16.5 million in distributions to unsecured creditors (as opposed to the $500,000 proposed by the original Hybrid Tech sale). Once again, Wanxiang was able to overcome the initial obstacles in the bankruptcy case and emerge as the successful bidder. With its second acquisition of assets out of a U.S. bankruptcy case, Wanxiang’ vertical integration in the electric car market has left it well-positioned to compete both in the U.S. as well as globally.

3. Brookstone

The third case study involves the acquisition by Chinese investors of the Brookstone Holdings Corp. specialty retail store chain out of its U.S. bankruptcy case. This is somewhat different from the previous two Wanxiang acquisitions in that it involves an ongoing retail business, whose success depends on correctly and consistently gauging the tastes of U.S. consumers (which might even be a bit trickier than manufacturing a new generation of electric automobiles).

Brookstone is an established U.S. shopping mall- and airport-based specialty retailer known for its distinctive range of “lifestyle gadgets.” Prior to filing Chapter 11 in April, 2014, in Delaware, it operated retail stores in over 240 shopping malls, airports, and other retail centers across the U.S. After a weak 2013 holiday retail season that resulted in lackluster sales, Brookstone began searching for a buyer. Its contemplated bankruptcy strategy to satisfy its creditors’ claims was to auction off its business as a going concern. In its first-day motions, Brookstone sought bankruptcy court authorization to sell its assets to Spencer Spirit Holdings, the parent of Spencer Gifts, another established U.S. card and gift retailer. Spenser Spirit Holdings had submitted a $146 million stalking horse bid. The auction in bankruptcy court came down to only two bidders: Spencer Spirit Holdings, and Sailing Innovation (U.S.) Inc. (a consortium of Chinese investors consisting of Sailing Overseas Investment Fund LP, a Chinese private equity firm, and Sanpower Group, a Chinese international retailing conglomerate).

An auction was held and, by June 2014, the Chinese investors were the successful bidders. By agreeing to pay about $174 million ($135.7 million in cash; $28 million of assumed liabilities, and $10 million in notes), the Chinese investors beat Spencer Spirit Holdings’ competing bid. The Chinese investors indicated that they would continue to operate Brookstone’s 242 stores upon exiting bankruptcy, much to the relief of Brookstone’s various creditor constituencies that were relying on the preservation of its business as a going concern.

This sale to the Chinese investors allowed the reorganized Brookstone to emerge from bankruptcy with substantially all of its stores in place, and its overall debt load reduced by over $240 million. After the auction, Brookstone’s CEO indicated that the acquisition by the Chinese investors had allowed Brookstone to restructure its balance sheet, improve its capital structure and “found a strategic partner who shares our vision and is committed to our growth.”[3]

For the Chinese investors, this acquisition provided a strategic opportunity to quickly and deeply penetrate the U.S. retail market by the acquisition of a well-known and established retail brand, revitalize Brookstone’s U.S. brand, and expand its business operations internationally by using the Brookstone brand.


These case studies demonstrate that foreign investors (especially, the cash-rich Chinese investors) have discovered the U.S. distressed marketplace, and are now quite adept at participating. If indeed this is the beginning of a trend, it exhibits the following features: First, foreign investors are paying closer attention to the types of assets that become available in U.S. bankruptcy cases. Indeed, they recognize the intrinsic strategic value of such assets, notwithstanding that they are currently trapped in financially-distressed corporate entities. Second, having learned from past successes (as well as some notable failures not discussed here), they are fundamentally comfortable enough to participate in the U.S. bankruptcy process, having presumably weighed the risks of any foreign adventure against the rewards, and decided to proceed. Third, they have now become skillful enough at maneuvering not only through the somewhat arcane U.S. bankruptcy process, but also (as in the A123 Systems case) the collateral political process. There, the successful foreign investor not only overcame the momentum of a competing bidder supported by the debtor’s management, but also the xenophobic headwinds of an active political lobbying effort by its rival bidder to defeat the sale precisely because it was to a foreign investor. Fourth, for strategically-desirable assets, foreign investors appear to be willing to pay premium prices – in cash – once again validating (as if it’s even necessary) that a competitive sales process really does work. This certainly improves the overall liquidity of the U.S. distressed marketplace, and makes bankruptcy a desirable means (in terms of speed and transactional efficiency) by which to recycle capital. Fifth, increasing participation by foreign investors closes the inevitable gaps between the respective foreign and U.S. business cultures. This can only redound to the benefit of U.S. business interests in an increasingly inter-connected globalized economy. Finally, the question must be asked: Who are the real winners by increasing the participation of foreign investors in our distressed marketplace? As these examples clearly indicate, the answer is simple: U.S. creditors.


[1] Leonard P. Goldberger, Esquire is a cross-border insolvency lawyer, and works with Chinese investors in acquiring financially-distressed businesses and assets out of U.S. bankruptcy cases. He has written and lectured on this topic in the U.S. and China. The opinions expressed herein are solely those of the author and do not represent those of either his law firm or its clients.

[2] Mr. Goldberger focus on Chinese investors for two reasons: First, as part of his law practice is China-related, he is familiar with Chinese investment activity in the U.S. distressed marketplace. Second, Chinese investors account for a high percentage of foreign direct investment into the U.S. In 2014 alone, according to a study by Rhodium Group, Chinese investors made investments in the U.S. totaling in excess of $12 billion. See

[3] Statement by James Speltz, Brookstone’s Chief Executive Officer and President, as reported by Reuters,


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