Patient Safety Technologies, Inc. (AMEX:PST) revealed today in an
8K filing a number of changes that the company plans to enact as it undergoes a restructuring. These changes included spinning off its SurgiCount Medical unit and the resignation of its interim CEO. In its press release, the company cited five key changes that it was going to make in its efforts:
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Spin-off to PST shareholders of a majority interest in SurgiCount
Medical, Inc., which will become a publicly traded company
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New private placement of common stock by SurgiCount to fund future
growth
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Possible acquisition of another operating company by the Company
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Resignation from the Company by CEO and Director Milton "Todd"
Ault III, in order to assist the Company in implementing
reorganization plan
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Financial restructuring, including debt conversion
Now, there are two key opportunities here. The first is the turnaround of this company, which is down from a 2005 high of around $6 per share to its current levels of $1.55 (after moving up 22% in today's trading). If this company can turn itself around it could mean significant share appreciation for investors. The second major opportunity here is in the spin-off opportunity, which is worth noting because spin-offs tend to outperform the larger market in their first year. Let's take a look at the company's plans and how they related to these two opportunities...
The Spin-offThe company's press release had the following to say about the proposed spin-off:
"The Board has approved a spin-off by the Company of a majority interest
in its wholly-owned subsidiary, SurgiCount Medical, Inc. The Company
also intends to raise new equity capital on behalf of SurgiCount, and
has already engaged an investment banking firm to assist SurgiCount in
conducting a private placement of its stock. SurgiCount intends to file
a registration statement with the Securities and Exchange Commission in
connection with the spin-off and become a public reporting company, as
well as seek a listing on a national securities exchange. The Company is
currently exploring the structure of the proposed spin-off transaction
in order to minimize the tax impact of the spin-off on the Company and
its shareholders."
The registration statement will be filed as a S-1 filing with the SEC under the new company's name with a notice likely as an 8K under PST's company name. The press release also clues us into the fact that the spin-off will likely be share for share transaction, since the company noted it would structure it in a way to minimize the tax impact. This is good news for outsiders, because existing shareholders may not want the shares and sell for non-valuation-related reasons, making the shares available for cheap.
The TurnaroundThe company's press release also noted many things about the proposed restructuring:
"
The Board has also approved management’s
exploration of opportunities to complete an acquisition of another
suitable operating company. In this regard, the Company is in
discussions with a possible acquisition target and is authorized to
enter into a letter of intent with the company to explore a possible
transaction. The Company also intends to sell, liquidate or monetize its
other assets and extinguish certain of its debts in preparation for a
possible acquisition. The Company does not intend to publicly disclose
further developments with respect to a possible acquisition transaction
unless and until a definitive agreement is reached.
Further, as part of this restructuring, Ault Glazer Capital Partners
LLC, one of the Company’s major creditors,
has agreed in principle to convert its outstanding loans to the Company
into equity, and convert two loans on properties owned by Automotive
Services Group, PST’s wholly owned
subsidiary, into PST common stock. This conversion, when completed, will
eliminate approximately $3.3 Million of the Company’s
existing debt, thereby significantly enhancing the Company’s
Balance Sheet.
Separately, the Company has reached a settlement agreement with Winstar
Global Media, Inc., relating to the Company’s
$1 Million Note with Winstar, and is currently awaiting a New York Court
to approve the terms of the settlement agreement, which is currently set
for November 7. The settlement, whereby the existing liability was
reduced to $750,000, provides that the Company abide by a payment
schedule set forth in the agreement, and eliminates another $250,000 of
debt, plus interest, of the Company."
This news is significant for several reasons. First, the company is eliminating almost $4 million of company debt while also trimming down its operations. If their proposed acquisition turns out as expected, it would also enhance their offerings and strengthen their cashflow. Although this process will take significantly longer, it could mean an eventual return to the company's previous highs.
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