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Corrections Corporation of America Message Board

  • yahoo yahoo May 12, 2005 10:47 AM Flag

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    • I would rewrite the moral as "Beware the REIT".
      Why a growth company would choose a structure that
      requires distribution of accumulated and future earnings
      is way beyond me.

      Early on, we were told it
      was great because of the tax savings. Nonsense. The
      government gets less revenue, true, but the corporation's
      cash flow is reduced by more than two times the tax
      savings (they have to pay 95 cents to save 40 cents). In
      CCA/PZN's case it's worse. They bragged about a 25% tax
      rate, so it's closer to a factor four.

      We were
      also told that the REIT structure provided better
      access to capital. Maybe in 1997, but this company will
      only be able to get capital at fire sale prices for
      the forseeable future.

      The only thing going
      for PZN, vis a vis VC/VTR, is that the prison
      business is still booming. And the only thing worse than
      setting up a REIT is doing it in a taxable transaction
      that raises no capital (VC/VTR) - dumb and dumber.

      • 1 Reply to newMK
      • See 2757 for 1 & 2 (tax savings, access to
        capital)

        #3: Invisibility of OPCO. When the REIT was
        announced, we were told that because OPCO would be private,
        it "could do so much more" (exactly what, I've never
        known). While I would rather have OPCO private than
        public (controlled v. independent), there will be no
        invisibility because of the recent bond terms. Of course, the
        invisibility of OPCO is what aggravated analysts so much from
        the start.

        #4: Price stabilization. When CCA
        missed earnings in Q3 1997 because of ramp up problems
        (which were quickly fixed), the stock price dropped 25%.
        We were told that because OPCO's ups and downs would
        be taken out of the picture, PZN would have stable
        prices based on predictable revenues. CCA essentially
        missed earnings again because of temporary occupancy and
        ramp up issues. Attempts to keep these issues
        invisible (without forthright disclosure) has caused a
        bigger drop in market cap (from a less lofty price) than
        the 97Q3 problems did. And again, by popular demand,
        the invisibility is gone. The only thing worse than a
        cover-up is a blown cover-up.

    • been speaking with several firms an major
      investors about the idea of finding a buyer..obviously not
      much chance within the industry but feel others
      including lbo firms may be....as even flipper said the reit
      does not work as they do not have access to money
      ....is not that the great reason for doc and jr grand
      plan...certainly not the milions jr was given for his great
      goldman ideas...the only solution other than crossing
      your fingers and waiting6 to 18 months to get back to
      20...is see if a buyer can be found

    • finding a buyer would work fine for existing
      management but shareholders would get screwed. As painful as
      it might be (and it gets worse with every dividend
      payment) I continue to think that OPCO and PZN should be
      combined and go back to a C corp, ala HOT. They have about
      doubled since their decision.

      Would this move
      result in an immediate increase in share price, allowing
      for issuance of new equity at much higher prices? No,
      but at least the dividend burdens would be
      alleviated. Yes, there would be taxes to pay but given the
      recent performance of OPCO, some creative accounting
      could minimize near-term tax payments.

      The
      business is working as well or better than anyone could
      have hoped for. It is the financing model that isn't
      working. Alot of the blame goes to PZN, some doesn't. I'm
      not interested in placing blame; I'm interested in
      getting this financing yoke off our neck.

    • i agree the current structure does not
      work...this was the docs doings....at some point someone
      should be held resposible for a billion dollar
      blunder....selling at 20 plus(if possible) is probably a better
      opportunity than hoping for better results for the next 6 to
      18 months...even if back to a c corp....doc would
      look like even a bigger jackass....doc needs to
      go...jr needs to go...and i agree we were better without
      the reit...thank god for little docs ideas...my guess
      is we will pay tens of millions to undue this
      mess...a lbo or buyout at 20 dollars looks good to me
      today....also would go along way toward limiting lawsuits

    • A few points:

      1) I really don't care about
      holding anyone responsible. Doc's net worth has dropped
      close to $70 million since PZN was $40. That's a pretty
      good slap on the wrist.

      2) Yes, I'd certainly
      sell at $20+ but the only way we'll get a $20+ offer
      from anyone is if we can first get the share price
      back to the mid to high teens. But if we get the price
      back to $15, then nobody would want to sell at
      $20.

      3) Doc needs to go? I see this alot. I just can't
      swallow it. Doc made not only PZN/CCA but he invented the
      whole privatization business. It's just like saying
      Dell needs to jettison Michael and Microsoft needs to
      fire Bill. I'm not in that camp.

      4) Doc's son
      got a few million for creating PZN. "C" item. Let's
      get to the "A" items. BTW, the whole idea of
      converting to a REIT was a potentially good idea,
      implemented horribly during a time when the world changed
      (REITS fell out of favor).

    • Most of these guys posting their brilliant fix-it
      ideas in the past 4 weeks couldn't get a job driving a
      limo - cuz every time it threw a rock into the
      wheelwell they'd get out and change the oil.

      With a
      little time we'll see a reversion to mean. And during
      that time the "Docs" can think about changes that need
      making. This shoot from the hip stuff usually gets ya
      shot in the hip.

    • 1.doc did not ivent this industry...tom beasly
      fellow west point man did...hired doc ...but tom wass
      pres and chairman for th e fhirst 5 to 8 years...tom
      and hutto were the real founders not doc 2...if you
      know doc you know he is not operational man...in fact
      has rarely set foot in facilities....as stated
      before..loves the st regis hotel in new york...loves talking to
      wall st(that is for the years his stock was soaring)
      loves when the wall st journal called for
      interviews(again in the good old days when stock was a darling)
      now is the time to find a 20 dollar buyer...the
      company is worth that..as the business is a good
      one.....the problem is doc and jr vision of the the reit
      ..private company..etc....but even you realize that is not
      going to work...so what does doc offer...wall st
      dislikes and worse does not trust him...few operatiuonal
      skills...a failed vision..the reit....while doc dropped 70
      million on paper (that is if he did not collar stock to
      hedge..would not have to report this) he atleast deserves
      it...but the remaining shareholder do not desrve and would
      be best served selling company ...and not get
      involved in docs giant ego...if tou live in nashville do
      not worry doc ego can live in his 4million plus
      mansion on chickering road...for those on wall st that
      would translate to a 6 to 8 million dollar home

    • .....he speaks with a straight tongue!

      P.S.
      Why is it I owe my broker money on the PZN stock I own?

    • Look at the progress(or lack of) of the
      competition. Look at their market share(or lack of). WHC,
      appears to be just sitting and waiting for business to
      come to them. Their REIT, CPV, is 85% dead and
      uneffective to raise equity capital. I feel the results of
      CCA speak for themselves as far as progress in the
      corrections field and for management. Doc is agressively
      bringing private corrections to the public. I feel the
      other private guys owe a lot to CCA, it's helped
      greatly putting private corrections permanently on the
      map.

      Now concerning this new structure, no matter how you
      slice it, it's not being accepted. I am very concerned
      now about it's effect on CCA/ZPN's future growth
      plan. I have been a strong supporter of the merger. I
      believe in the bricks and mortar strategy. I think if the
      stock has not rebounded to the mid teens by Fall the
      new structure will most likely seriously effect PZN's
      growth. Where you go from there I don't know, C Corp.
      with a captive REIT? I don't know. It's too bad I do
      think the structure makes sense.

      Since PZN has
      till year end to declare their REIT staus they have
      some time to work with this. I don't see the issue to
      be in "panic" mode till the Fall if the stock is
      still low. If it was up to me I would make my decision
      prior to the 3rd quarter dividend. They have plenty of
      dough for awhile.

      REIT problems are self
      full-filling. The stock price drops, so the yield goes up, the
      cost of equity go up, the debt yields go up...and the
      analysts lower their estimates because of all the above.
      Then the cycle starts over again. Till the growth of
      the REIT is finished and they have used up their
      credit lines and debt capacty. Then you own a "bond",
      till such time the stock comes back and you can start
      the process again. This is CPV. Not a good way to
      fund a growth company.

    • In reading your comment that the price for new
      equity is not accretive any more, I was trying to
      calculate at what price it would be. If they're paying
      $2.20, is the correct calculation to divide $2.20 by
      whatever they're earning? For example, if they're making
      20% on every invested dollar $2.20/.20 equals $11.00
      per share. 15%=$14.67 10%=$22 Is this right?

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