Aegion Announces Several Actions To Deliver Sustainable Growth

(RTTNews) - Aegion Corp. (AEGN) announced several actions to deliver sustainable growth and address the market realities in the North American energy markets.

Aegion has executed a definitive agreement to acquire Underground Solutions, Inc. for $85 million in cash and expects to close the transaction during the first quarter of 2016. The Company will separately pay for the discounted value of tax benefits (estimated today to be approximately $5 million) associated with Underground Solutions' net operating loss carry forwards at closing. Aegion will fund a substantial portion of the purchase price with existing cash and the remainder from borrowings against the Company's line of credit.

Aegion expects the transaction to be accretive to 2016 GAAP earnings per share with revenues of approximately $50 million and operating margins in excess of 10 percent. Several key members of Underground Solutions' senior management, who average more than 20 years of industry experience, will join Aegion to form an expanded team dedicated to trenchless rehabilitation of existing pressure pipelines.

In a separate action to continue the recent momentum in the Fyfe business, the Company signed a definitive agreement with Fyfe Group, LLC to acquire the legal rights to products, contract installation, intellectual property and licensing agreements in key international markets not previously purchased by Aegion for approximately $3 million. The transaction is expected to close during the first quarter of 2016 and will allow the Company to expand third party product sales across 72 countries in Europe, Africa and the Middle East.

Following a recent assessment of its energy-related businesses, Aegion concluded the persistent low price of oil is expected to create market challenges for the foreseeable future and that the high-cost upstream oil markets it serves in California and Canada will be particularly difficult as customers further reduce expenditures in 2016. In light of expectations for a prolonged low oil price environment, Aegion will reduce its exposure in the North American upstream market by approximately $100 million in annual revenues through two specific actions.

First, Aegion has entered into a definitive agreement to sell its 51 percent interest in Bayou Perma-Pipe Canada, Ltd, a pipe coatings company in Western Canada, to its joint venture partner MFRI, Inc. for approximately US $9 million. Aegion expects the transaction to close during the first quarter of 2016.

Second, the Company will downsize Energy Services' upstream operations in Central California due to reduced customer demand while continuing to support the remaining customers in the region with its high-quality services and industry leading safety programs.

The company noted that it will also implement a restructuring plan approved by Aegion's Board of Directors to reduce consolidated annual expenses by approximately $15 million, most of which will be realized in 2016. The restructuring will reposition Energy Services' upstream operations in California, right-size the Corrosion Protection platform to compete more effectively and reduce corporate and other operating expenses. The company intends to complete the cost reductions and record a majority of an estimated $7 to $9 million in pre-tax charges, most of which are cash charges, during the first quarter of 2016.

The pre-tax charges primarily consist of employee severance, extension of benefits, employment assistance programs, early lease termination and other non-cash costs associated with the restructuring. In the coming weeks, the Company expects to complete a detailed review of approximately $150 million in intangible assets, including goodwill, for certain of Aegion's energy-related businesses impacted by the adverse change in market conditions, a portion of which could be impaired.

Aegion expects 2016 will be a more difficult year for the North American energy markets, particularly related to upstream capital spending as customers continue to decrease investments in response to persistent low oil prices. Based on the decision to reduce exposure in the upstream markets, it expects Energy Services' revenues to decline by approximately $70 million from 2015 with no adverse impact to its operating margins percentage as a result of the restructuring.

"The favorable market conditions for the majority of Aegion's business and the strategic actions outlined today give us the opportunity for 2016 non-GAAP earnings per share to be in line with what we expect to achieve in 2015," the company said.