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  • billberggren billberggren Jan 19, 2000 10:46 AM Flag

    Dividend rate for 2000?

    There probably won't be any dividend. PZN is
    undergoing a De-REIT and merger (for no reason) with OPCO
    and is having an investment group infuse $350 million
    (for no reason). That is the reason why the stock is
    flat. We are waiting until spring to vote on it.
    Hopefully, the vote will fail and I guess we would be an
    REIT then.

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    • Billberggren, hasn't that train already left the
      station? My understanding is that, if the vote fails, PZN
      has not qualified as a REIT and thus I assume is by
      default a c-corp, minus OPCO. But I'm no lawyer. Any
      laywers on the board, do the terms of the merger spell
      out what happens if PZN fails to qualify as a reit?
      Can shareholders compel undoing of the merger (if
      that even makes sense now) since the terms were
      violated by management? Return of CCA shares in exchange
      for PZN shares, since it might reduce the stench of
      this "deal"? It is beginning to sound like this
      Blackstone infusion/ management shakeup is just another way
      to postpone the day of reckoning, when all the ugly
      stuff comes out.

      • 2 Replies to joepalookaboggs
      • I have glanced at this message board a few times
        per year since about mid 1998, but this is my first
        posting. I have about 6% of my investable funds in PZN. My
        purpose in posting this message is to explain why, in
        simple terms, PZN will be MUCH better off as a C Corp
        than a REIT.

        Let's begin with some assumptions
        that are widely held and not in dispute:

        1)the
        private prison industry is expected to grow significantly
        over the next five years, with a compounded annual
        growth rate (CAGR) for the industry of 15% to 25%. Even
        if the private prison industry grows at the upper
        end of that growth range, total market penetration
        for the industry will be below 15% after five years.
        The point is simple: this industry is growing quickly
        and HAS A LOT OF ROOM TO GROW.

        2)PZN is the
        market leader in the private prison industry with the
        greatest number of beds under management. This means they
        have beat their competition consistently in the past
        in terms of getting new business. The point: it is
        likely that PZN will grow as fast or faster than the
        private prison industry as a whole, and can do so for
        many years.

        Given the above growth assumptions,
        consider the following:

        1) a REIT must by law pay
        out virtually all annual net income as dividends to
        its shareholders. This means that it cannot use its
        profits to fund the growth of the company, but rather
        must constantly look for external sources of capital.
        The REIT structure is a liability for any company
        that is constantly growing, and PZN's financial
        managers were foolish to believe it was the appropriate
        structure for their company.

        2) PZN's remaining
        managers have announced that, even if the Blackstone group
        deal did not go through, they would roll everything
        into a single C corp anyway. This is the right
        decision, for two very simple reasons: a)even if they do
        not have access to external sources of capital, they
        could at leat grow to some degree from retained
        earnings if they were a C corp, and b) rolling the now
        complex PZN cross holdings into a single C corp would
        make the company MUCH easier to understand, which will
        increase the likelihood of obtaining external sources of
        capital.

        Given the above, it should be clear that rolling the
        various PZN related companies into a single C corp is the
        right decision. Further, any manager or director who
        was responsible for supporting the conversion to a
        REIT should be removed from the financial decision
        making process in the future (i.e. they may be useful to
        the prison operations side, but don't let them get
        involved in the corporate finance side).

        Finally,
        only two questions remain: a) does PZN need the $350MM
        in capital that the reorganization will provide? and
        b) if so, are the terms reasonable?

        1) Given
        the growth assumptions above, the issue is not if PZN
        needs the additional capital, but when. It would be
        conservative to obtain the additional capital early.

        2)
        are the terms of the deal reasonable? the short
        answer: I don't know. What I do know is that once the
        deal is done, Blacksone et al will be on the board
        watching this thing. I strongly suspect they are not doing
        this for the 12% return they will get if the stock
        stays down. I also strongly suspect that stupid (yes,
        stupid) financial decisions (like becomming a REIT in the
        first place) will be a thing of the past with Blacksone
        on the board.

        Therefore, I am strongly in
        support of the proposed transaction.

        I hope this
        posting has been helpful.

      • I couldnt agree with you more, I think the merger
        thing is only a smoke screen, and all the negative
        things are yet to come out.
        One thing for sure, time
        will tell the whole story.
        My opinion the rumor of
        the great merger is only to buy a little time, in
        hopes that they can get their s*** together, and save
        the company.

    • There will be no meger, who will invest that amount of money into a useless piece of stock.

 
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