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Green Energy Losers: A123 Systems

(Green energy losers, A123 Systems story, updated for Thursday trading decline, analyst commentary, IPO discussion)

NEW YORK (TheStreet) -- Shares of lithium ion battery maker A123 Systems (AONE) fell sharply in trading on Thursday, the continuation freefall in A123 shares this week after the high-profile, cash-burning company said it plans to offer 18 million shares to the public in a secondary offering, as well as proceed with a $125 million convertible bond deal. The deal was announced after the close on Monday, when A123 Systems began to fall. By mid-day Tuesday, A123 Systems shares were declining by more than 10% on twice its average daily volume of shares traded.

After Thursday's decline of 8.7% and another heavy volume day -- more than 7 million shares traded versus an average daily volume of 1.5 million -- A123 shares are down almost 20% this week.

The deal had not priced as of Thursday afternoon, yet the freefall in A123 shares suggests that investors are betting the deal will price in the range of $6. A123 shares closed at $6.35 on Thursday. When the secondary offering was first announced after the close on Monday, A123 shares were at $7.80. Analysts consulted by TheStreet on Monday expected the deal to price at a discount to that $7.80 Monday closing price, but still at a potential price of $7.

On Thurrsday afternoon, one green energy analyst who cannot be quoted on A123 for compliance reasons but closely follows the company said the weakness in A123 shares this week means the deal may price roughly $1.50 below A123's original expectations.

"Every day that it doesn't close is another day of uncertainty, and investors are now looking at a $6 price given recent weakness," the analyst said.

The recent slide in A123 shares is a double-edged sword. The green energy analyst said that when an investor considers a $6 share price relative to A123's all-time high and IPO price, it may look like a very cheap deal. This could lead the price to be oversubscribed. Regardless, the deal will ultimately raise less money than A123 may have been banking on since its shares have fallen so aggressively since the secondary was announced.

"Based on my conversations with the buy side, people are interested in the deal with the recent weakness in the stock. Just look at where it is today and where it went public and it's all-time high and psychologically it appears cheap."

On Monday, when A123 announced the secondary deal it also lowered its first-quarter revenue guidance because of supply constraints stemming from the devastation in Japan following the earthquake and tsunami there earlier this month. It saw its stock fall 9% to $7.11 in the after-hours session on Monday, and by mid-day Tuesday, A123 shares were at the $7 mark.

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