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Corrections Corporation of America Message Board

  • flipper_58 flipper_58 Mar 14, 1999 4:49 PM Flag

    Those against the merger..please respond

    Everything was fine right? CCA and PZN working
    hand in hand, everybody happy. WHC thinks it such a
    good idea it spins off CPV which lowers their tax
    bracket and gives needed cash to WHC. Now the plot
    thickens.

    CPV has 5,854 beds. It paid roughly $30k/bed and has
    used up all it's cash and 2/3's of it's $100MM credit
    line to do it. WHC has 3,000 more beds to sell them
    too. The problem lies in their stock price. The market
    is now valuing their 5,854 beds at $18.27/bed
    ($15*7,130,000/5,854). Since they need more equity to get more debt that
    means they need to sell more new shares, in essence, at
    $18.27/bed to turn around and pay $30k/bed for them. Doesn't
    make much economic sense does it?

    Sam Zell
    realized this last summer with his REIT's and decided to
    just buy shares back with his extra cash
    instead....smart.

    Thanks to merger with CCA, the opco's can pay high lease
    rates(11%+ verses CPV's 9.5%)and flow through enough extra
    cash, PZN can pay a high enough dividend rate to keep
    it share price high enough
    ($73k/bed...110MM*$20/30,000beds)to buy/build new beds at half that
    price($30-40k/bed). This makes the whole process accretive for old
    and new shareholders. Brings in new equity which
    allows for new debt which allows for more and more
    profitable spreads whichs allows for dividend and share
    price appreciation....easy, right? Did I do the math
    correct?

 
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