By Tom Hals and Ben Klayman
REUTERS - China's largest auto parts maker won U.S. government approval to buy A123 Systems Inc , a maker of electric car batteries, despite warnings by some lawmakers that the deal would transfer sensitive technology developed with U.S. government money.
The sale of the lithium-ion battery maker to a U.S. unit of Wanxiang Group was approved by a U.S. government committee on foreign investment, according to a statement from the Chinese company.
Last month, Wanxiang's U.S. agreed to pay $257 million for A123's automotive battery business and related assets in a bankruptcy auction, beating out U.S. rival Johnson Controls Inc of Milwaukee.
But the transaction still needed approval by the Committee on Foreign Investment in the United States, a government body led by the Treasury secretary. The CFIUS approved the deal on Monday night, according to Wanxiang.
"Wanxiang America looks forward to closing the transaction and to continuing to foster the technologies A123 has worked so hard to develop," said Pin Ni, the president of Wanxiang America Corp, in a statement.
Some members of Congress and retired military leaders said the sale to Wanxiang could jeopardize U.S. energy security and they asked the U.S. committee to block it.
A123 had received a $249 million grant from the U.S. government as part of a stimulus program to promote clean energy, although about half of that money was never released.
A123, which developed as a startup at the Massachusetts Institute of Technology, filed for bankruptcy in October due to weaker-than-expected demand for hybrid vehicles and technical problems.
Johnson Controls, which threw its support behind those groups that were lobbying against the sale to Wanxiang, declined to comment on Tuesday.
The sale has already been approved by the U.S. Bankruptcy Court and A123 said on January 18 it expected the deal to close by Friday.
The money raised in the auction will be used to repay the battery maker's debts of about $376 million.
A123 makes batteries for Fisker Automotive, BMW hybrid 3- and 5-Series cars, and General Motors Co's all-electric Chevrolet Spark, which is scheduled for release later this year. China's SAIC Motor Corp and India's Tata Motors also are customers.
Wanxiang tried to blunt criticism of the deal by excluding A123's defense contracts from its bid at the auction. Those were sold separately to Navitas Systems for $2.25 million.
"There is no question that CFIUS process is there to fully protect national security issues and we are glad that we could have addressed all the concerns CFIUS has," said Wanxiang's president in an email to Reuters.
One member of Congress said he remained opposed to the sale.
"American taxpayers should not be funding technology that will in turn be used in competition against American companies," said Bill Huizenga, a congressman from Michigan, in an email to Reuters.
A123 received its U.S. government funds, which it used to build manufacturing plants in Michigan, as part of a $90 billion program to promote clean energy. Of that, at least $813 million went to companies that eventually went bankrupt, including solar firm Solyndra.
Chinese companies have been pouring cash into overseas investments, and with that money has come concerns around the globe that companies with ties to Beijing may not play by free-market rules.
The CFIUS recently rejected a bid to build wind farms in Oregon by Ralls Corp, owned by two executives of China's Sany Group. The committee has also blocked multiple deals by Huawei Technologies Co, a Chinese telecom equipment manufacturer.
Wanxiang may have soothed the concerns of CFIUS members with its history of investing in the United States.
The company generates about $1 billion in U.S. revenue by supplying parts to GM and Ford Motor Co . It has bought or invested in more than 20 U.S. companies, many of which were in bankruptcy, according to a congressional report.
(Reporting by Tom Hals in Wilmington, Del., Ben Klayman in Detroit and Ayesha Rascoe in Washington; editing by Grant McCool and Matthew Lewis)