WILMINGTON, Del, Dec 11 (Reuters) - The creditors of bankrupt A123 Systems Inc are supporting a Chinese company's controversial bid for the U.S. maker of electric car batteries, the creditors' attorney said on Tuesday.
The attorney, William Baldiga, said he expects the sale to be quickly approved by a bankruptcy court later Tuesday, but China's Wanxiang Group still needs regulatory clearance to acquire A123, which was funded partly with U.S. government money.
Wanxiang, China's biggest maker of auto parts, bid $257 million for A123, topping Johnson Controls Inc on Saturday in a bankruptcy auction. Wanxiang's interest in A123 has sparked protests from U.S. politicians about transferring taxpayer-funded technology to an economic rival.
A123 has never turned a profit and received a $249 million grant from the U.S. Department of Energy to develop lithium-ion batteries.
The battery maker's unsecured creditors "absolutely" support the sale to Wanxiang, said Baldiga, of law firm Brown Rudnick, who represents the official committee of A123's unsecured creditors.
Dozens of objections to the sale have been filed with the U.S. Bankruptcy Court in Delaware, which is handling A123's Chapter 11 bankruptcy case. Baldiga said he expects most of those objections to be resolved quickly at Tuesday's hearing, scheduled for 2 p.m. EST (1900 GMT).
The most prominent objection may have been settled on Monday, when a Department of Energy official said the remaining $120 million of grant money would not be transferred to Wanxiang.
The Chinese company still needs the approval of the Committee on Foreign Investment in the United States (CFIUS) to close the deal. Pressure has been building on Treasury Secretary Timothy Geithner, the head of the panel, to block the takeover.
Wanxiang's bid excludes A123's defense contracts. But a group of former military leaders and industrial consultants said in a statement on Tuesday that A123's commercial and defense businesses were too similar to allow the sale to a Chinese company. The group, the Strategic Materials Advisory Council, has urged Geithner to stop the sale.
A123 filed for bankruptcy in October as demand for electric vehicles did not live up to expectations and it was forced to recall defective car batteries. Its customers include Fisker Automotive, General Motors Co and BMW.
Baldiga said that if the foreign investment committee does not approve the sale in the coming weeks, Wanxiang could walk away, although it would forfeit a $25 million deposit that would go toward repaying A123's creditors.
If that were to happen, A123 could then go back on the block, and Johnson Controls has said it was "very interested" in bidding again. Johnson Controls and NEC Corp of Japan made a final bid of about $251 million, according to Alex Molinaroli, president of Johnson Controls Power Solutions.
The only other company that qualified for the auction, Siemens AG of Germany, does not appear to have made a bid, according to a transcript of the auction.
If the foreign investment committee has not approved the sale by Jan. 15, the deal could still close by transferring A123 to a trust controlled by U.S. citizens. Baldiga said there was "good precedent" for structuring the deal using such a trust, which would not need CFIUS approval.
In that case, the money from Wanxiang would be used to repay the creditors of A123, which filed for bankruptcy with $376 million in liabilities. It would then be up to Wanxiang to resolve any foreign investment committee objections.
The case is A123 Systems Inc, Delaware Bankruptcy Court, No. 12-12859.