Proposed PSP merger goes to shareholders

Elizabeth Howell
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Debt-ridden Pacific Safety Products Inc. (TSX-V:PSP) will take a proposed merger with Zuni Holdings to its shareholders next month as the defence firm brokers a deal to give Zuni majority ownership.

Pacific Safety Products makes body armour similar to what this soldier, on exercise in Quebec, is wearing. (Photo courtesy DND)

The two companies inked an arrangement agreement on Nov. 17, garnering the approval of the soft-armour maker's board of directors.

Earlier this year, shareholders turned down several offers by Revision Eyewear Inc. to buy the company and subsequently, some of its assets.

After shareholders accepted a vastly downgraded deal, the chief financial officer left for another firm in August and five board members resigned.

But late Friday, shares of PSP jumped 50 per cent to 75 cents following public release of merger details. Should it be approved, it would take place around Dec. 31.

"The board of directors of Zuni believes this transaction optimizes the value of the remaining assets of the company," PSP said in a statement in October, when news of the proposed deal first became public.

"The board of directors of PSP believes this transaction will solidify its capital position and allow it to take advantage of significant growth opportunities that are available to the company.

"Both boards anticipate that the merger will create savings with the elimination of numerous redundant administrative, public company and other costs."

PSP lost $9.2 million in 2009, and $220,891 in 2008. In the third quarter of 2010, the defence firm disclosed a net loss of $87,000 compared with a $418,000 profit in Q3 2009.

The merger would see 45.8 per cent ownership by current PSP shareholders and 54.2 per cent ownership by current Zuni shareholders.

A share swap would also take place, with Zuni shareholders receiving one PSP common share for each Zuni common share.

Current chief executive Doug Lucky would remain in his position, with PSP's new board including the directors of Zuni and PSP.

Shareholders for both firms will have the chance to vote on the matter late next month.

In March, PSP said Revision Eyewear would purchase the firm for $4.6 million, a deal that was later turned down by shareholders. They also refused a later $1.275 million offer for some of PSP's assets.

By August, when Pacific was operating under forbearance from its bank, shareholders accepted Revision's price of $275,000 for the helmet liner portion of PSP's headborne system. PSP also raised a $1 million private placement to gain breathing room.

Shortly afterwards, PSP's chief financial officer and five board members left the firm.

The company initially moved to Ottawa from the west coast to be closer to its competitors, but has had to let go of dozens of people since then as its financial fortunes fell.

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