UPDATE: PSP asset sale terminated

Elizabeth
Elizabeth Howell
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Pacific Safety Products (TSX-V:PSP) has hit another roadblock in its attempt to reverse the company's fortunes, the local defence firm said Monday.

Body armour sold by Pacific Safety Products.

The soft-armour maker stated a deal to take its assets private will not go forward as planned.

"The letter of intent with Sun Capital Partners to sell substantially all of (PSP's) assets, and the associated exclusivity period, has been terminated," PSP stated in a short press release Monday morning.

The Arnprior-based firm initially announced an asset sale to an unnamed affiliate of Florida-based Sun Capital Partners on Jan. 23, "on a cash-free, debt-free basis for cash payable at closing."

According to CEO Doug Lucky, the decision was made at the board level of PSP and at the partner level of Sun Capital Partners. The deal had not been brought forward to shareholders yet, as was scheduled to happen this month.

"Just pursuent to the due diligence and enusing discussions, it became clear the two parties were not able to come to an agreement, and it would make sense for both of us (to terminate)," he said in an interview with OBJ.

He declined to further specify what had happened, except to say it was a mutual agreement and that PSP would continue to look for ways to execute on its core strategy of organic growth, and "catalyst revenue and partnering transactions."

Mr. Lucky added he could not comment on if negotiations are proceeding with other interested parties.

If the right opportunity comes along, he said, PSP would be open to a transaction that would keep the assets public, depending on the situation.

"The strategy is really unchanged from when I became CEO, which is to ideally grow the public company business and create value," he said.

Sun Capital, a private investment firm, targets itself specifically to "underperformers, turnarounds, and special situations," according to its website.

The PSP deal would have seen manufacturing continue under private ownership while the public company would have remained a shell firm with no assets. 

In January, Mr. Lucky said the deal would remove $1 million to $1.5 million in public operating costs from PSP's balance sheet. These expenses included audits, lawyers and maintaining a board.

"What we needed to do is permanently secure the company's finances for the future, and that's what this transaction does," Mr. Lucky said in an interview with OBJ at the time.

PSP lost $900,000 in the quarter ending in December, the firm announced Wednesday, compared with $200,000 for the same period last year.

The company has struggled to get to profitability since moving to Ottawa from the west coast around 2007 to keep a closer eye on the competition.

In 2010, it made several failed attempts to sell the firm and its assets prior to a successful merger with Zuni Holdings Inc. in December that year.

Shareholders initially rebuffed a proposed acquisition where Revision Eyewear would buy PSP for about $4.6 million, or 14 cents a share - a 50-per-cent premium over the weighted average trading price of PSP's common shares on the TSX Venture Exchange for the 30 trading days prior to March 4 that year.

When that fell through, PSP proposed another deal to sell the headborne business only to Revision for $1.275 million. Shareholders turned that down as well, causing PSP to flirt with bankruptcy.

Revision subsequently picked up the assets at a reduced price. By summer 2010, most of PSP's management team resigned and Mr. Lucky, formerly an adviser to Zuni, took the helm.

Organizations: Sun Capital Partners

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