UPDATE, 12/11/12, 6:10 p.m. EST: The names of lawyers from Sidley Austin and Covington & Burling have been added in the article’s seventh and eighth paragraphs.

Chinese auto parts manufacturer Wanxiang Group is set to acquire the assets of bankrupt—and onetime government-backed—A123 Systems, which makes lithium-ion batteries for electric cars, after coming up with the winning bid Sunday.

Emerging victorious from an auction process that unfolded just months after it unsuccessfully attempted to rescue A123, Wanxiang topped a joint bid made by rivals Johnson Controls Inc. and NEC Corp. by offering to pay $256.6 to acquire the Waltham, Massachusetts–based debtor’s automotive and commercial businesses. The deal requires the approval of the federal bankruptcy court and U.S. regulators, and a hearing in U.S. Bankruptcy Court in Delaware is scheduled for Tuesday.

While Wanxiang’s initial plan to save and take over A123 by pumping $465 million into the struggling company would have helped the battery maker avoid filing for bankruptcy, A123 was forced to seek Chapter 11 protection when that bid collapsed in October. As The Am Law Daily reported at the time, Johnson Controls appeared poised to take control of A123 after Wanxiang’s rescue attempt failed, but the Chinese investor managed to regroup and thwart the Milwaukee-based company’s plans.

In addition to the bidding war waged by suitors, A123′s bankruptcy sparked a war of words among politicians amid the recent presidential election, with the Obama administration drawing criticism for subsidizing A123 via a federal stimulus program aimed at the electric-car industry. Though A123 received a $249.1 million government grant in 2009 to build a manufacturing facility in Livonia, Michigan, a drop-off in orders for the company’s lithium batteries coupled with high production costs plunged A123 into debt.

Wanxiang’s winning bid for what remains of the battery maker has ignited further controversy. The New York Times reports that some congressional Republicans are concerned that the deal would allow a Chinese company to benefit from technology developed in part with U.S. tax dollars. (In a separate transaction that the Times reports is meant to allay concerns about sensitive military information being sold to an overseas buyer, a smaller A123 unit that partners with the U.S. government and holds military contracts is to be sold to Illinois-based Navitas Systems for $2.2 million.)

Sidley Austin is advising Wanxiang and its U.S. subsidiary, Elgin, Illinois–based Wanxiang America Corporation, on its winning bid. Chicago-based corporate reorganization partners Bojan Guzina and John Box are leading the Sidley team, according to a purchase agreement filed Monday in bankruptcy court [PDF].