Report: GM Nearing Deal to Buy Battery-Maker Cobasys
By Scott Doggett June 5, 2008By Scott Doggett, Contributor
General Motors Corp. is nearing a deal to buy Cobasys, the Orion, Michigan, company that supplies the automaker with nickel metal-hydride batteries for several models, Automotive News reported today.
As Green Car Advisor reported several days ago, Cobasys supplied the 9,000 nickel metal-hydride batteries the automaker recalled after receiving an usually high number of warranty claims against the battery.
As a result of the recall, GM won't sell as many hybrid cars as it had hoped this year. The cost of the recall could easily be in the tens of millions of dollars but has not been disclosed.
Cobasys' joint owners – California-based Chevron Corp. and Michigan-based Energy Conversion Devices Inc. – have been fighting over who is responsible for the battery-maker.
GM's Director of News Relations Tom Wilkinson declined to comment. Calls to Cobasys, Chevron and Energy Conversion Devices were not returned. Citing an unidentified source familiar with the effort, Automotive News reported that GM called on BBK Limited to conduct a financial audit of Cobasys. GM often turns to the Detroit-based turnaround and consulting firm for help with supply chain problems.
The BBK assessment is part of GM's efforts to iron out problems at the supplier for a possible buyout. One acquisition strategy under consideration is a partnership, but GM would own 100 percent of the company, according to one source familiar with the situation.
The partnership would aid GM product development and the ability to sell Cobasys products, the source said.
Citing a third source with knowledge of the talks, Automotive News reported a deal between GM and Cobasys' parent companies is imminent. Chevron, headquartered in San Ramon, California, and Energy Conversion Devices, located in suburban Detroit, each own half of the company, with Chevron holding a preferred interest.
In a quarterly report last month to the Securities and Exchange Commission, Energy Conversion Devices said Cobasys' owners were negotiating to sell the company to an unnamed buyer.
The filing also said an unnamed customer has been propping up Cobasys since February by giving it a loan to purchase equipment and paying higher prices for its batteries.
GM has a strong interest in seeing Cobasys stay afloat. GM recalled the Cobasys-made battery packs in its 2007 hybrids because of a leak that caused the hybrid powertrains of two Saturn vehicles to shut down.
In order to solve the problem, Cobasys stopped battery production for more than a month. That shutdown hurt GM's production of its Chevrolet Malibu and Saturn Aura and Vue mild hybrids. Mild hybrids use electric power from a battery pack to boost the gasoline powertrain.
If Cobasys were to go out of business – a possibility if it isn't sold, according to Energy Conversion Devices regulatory filings – GM would be left scrambling for a supplier of nickel metal-hydride batteries for its mild-hybrid models and for an inventory of replacement parts.
Automotive News, citing a source who knows about Cobasys battery production in Springboro, Ohio, reported that the plant has more capacity that it can devote to GM hybrids if more batteries are wanted.
Before the buyer emerged, Cobasys had been the subject of an arbitration fight between its two owners since September.
According to a quarterly report that Energy Conversion Devices filed with the SEC on May 8, Chevron's Technology Ventures unit accused Energy Conversion Devices of failing to fund Cobasys or agree to a Cobasys budget for 2008. Chevron also accused Energy Conversion Devices of not honoring Chevron's preferred interest in the company.
Energy Conversion Devices denied the charges. An arbitrator heard the case in January, but on Feb. 15, before the arbitrator could rule, Energy Conversion Devices and Chevron agreed to enter negotiations with "a potential buyer" who had made an offer for Cobasys, according to the filing. The filing said the deadline for a deal to sell the supplier has been extended seven times.
The filing also says that Cobasys lost about $76 million in 2007 and expects to lose between $82 million and $86 million in 2008.
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