PowerSecure to sell Southern Flow to focus on core energy, smart grid solutions business

Source: PowerSecure International, Inc.

PowerSecure International, Inc. (Nasdaq:POWR) announced it has entered into an agreement to sell its Southern Flow subsidiary, enhancing the Company’s focus on its core Energy and Smart Grid Solutions business. Under the terms of the agreement, Zedi, Inc. (TSX V: ZED), a Canadian corporation, through its wholly-owned subsidiary will purchase 100% of the stock of Southern Flow Companies, Inc. for $15.550 million. The Company expects the transaction to close in January, 2011, after financing and credit facility arrangements have been completed for both Zedi and PowerSecure, and customary closing conditions have been completed.
 
The Company expects to record a pre-tax gain of approximately $4.5 million in the fourth quarter of 2010 related to the sale of Southern Flow. It is anticipated that tax expense related to the gain on the sale will be less than $0.5 million. The after-tax gain on the sale, as well as Southern Flow’s operating results, will be reported as discontinued operations in the Company’s financial statements. Upon closing, the effective date of the transaction will be January 1, 2011. 

In conjunction with the closing of the Southern Flow sale, PowerSecure intends to enter into an amended credit facility with its lenders. The Company expects the terms of the amended facility will include modifications to covenants to accommodate the transaction and the Company’s financial profile after the transaction, and reductions to the size and amounts available under the facility given the significant cash generated from the sale.

The sale of Southern Flow represents a continuation of the Company’s strategy to monetize its non-core assets in order to focus on its core Energy and Smart Grid Solutions business. The Company’s core business is focused on bringing products and services to electric utilities and their large commercial, industrial, and institutional customers in the areas of Interactive Distributed Generation, Energy Efficiency, and Utility Infrastructure. The Company has one remaining non-core business asset, its WaterSecure investment, which is a 40% interest in a water processing and disposal business that serves oil and gas producers in Colorado. Although this asset is non-core, it has been a source of positive, regular cash flow and earnings, and its financial results are reported separately from the Company’s core business because they are recorded below operating income using the equity method of accounting. WaterSecure’s positive attributes provide the Company with significant value from an earnings and capital structure perspective, but because it is not strategic from a business perspective, the Company remains open to monetizing this asset in the future. 

Sidney Hinton, CEO of PowerSecure, said, "We are very pleased to be able to sell our Southern Flow unit, and enhance the focus on our core business. The monetization of this non-core asset is a continuation of our strategy to focus on our core, and gives us the opportunity to deploy our capital more efficiently into areas of even higher return. We are very positive about the transaction with Zedi because of their strong understanding of Southern Flow’s business, and the technological capabilities we perceive they can bring to the business. We want to thank the entire Southern Flow team for their years of service to our Company, and we wish them well in their exciting new beginning with Zedi.”



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