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.
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.
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 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.