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Corrections Corporation of America Message Board

  • profiteer_us profiteer_us Aug 28, 2000 8:40 AM Flag

    Ferguson strongarms officers

    Prison CEO plays tough with CCA merger
    By
    Getahn Ward / Staff Writer/Tennessean
    As of
    yesterday, corporate executives of Corrections Corporation
    of
    America had all cast votes in favor of a proposed merger
    with affiliate
    Prison Realty Trust.

    But it
    took some arm-twisting for the officials to do
    so.

    Early Thursday, John Ferguson, new chief executive
    officer of the
    Nashville-based owner and operator of
    prisons, told officers who had not
    yet voted that they
    had to vote for the merger by 2 p.m. or be
    fired.

    "The merger of CCA and Prison Realty is critical,"
    Ferguson said
    yesterday, confirming the mandate to the
    group, which included several
    corporate vice
    presidents and CCA's chief financial officer. "If
    an
    officer cannot support the action of their board, then
    they're working
    in the wrong place."

    A
    shareholder vote on the merger is scheduled for Sept. 12;
    until that
    time, shareholders may vote proxies in
    advance. Ferguson said he saw
    nothing wrong with
    demanding loyalty to the company.

    "We're going
    through some tough times and it's going to be tough for
    a
    long time," he said. "We don't need people not sure if
    they're going to
    be here. We need clarity as to
    everybody's pulling in the same
    direction."

    The
    ultimatum received mixed reaction from legal and securities
    experts.
    Some observers called it unethical; others questioned
    it but said there
    was nothing legally
    wrong.

    Ferguson's action reflects the fear of a worst-case scenario
    if the
    merger deal doesn't receive shareholder
    approval. Bankruptcy has been
    cited among options if the
    deal doesn't go through.

    Prison Realty and
    sister company CCA are separate, but have had
    common
    management. Each has stock held by investors, but only Prison
    Realty's
    is publicly traded.

    The latest merger would
    reverse an unsuccessful conversion to a real
    estate
    investment trust structure in January 1999. It requires
    80%
    approval by CCA shareholders and two-thirds approval of
    outstanding
    Prison Realty shares.

    The outcome is uncertain.
    For instance, one of CCA's largest
    shareholders --
    Sodexho Alliance, which owns 16.9% of the
    company's
    shares -- has yet to cast its vote.

    Yesterday,
    Ferguson said the six to eight officers who voted
    Thursday
    represent 15% of CCA shares. Many of CCA's executives and
    other
    employees were granted stock in the company as part of the
    1999
    conversion.

    Separately, Ferguson confirmed Prison
    Realty has voted about 9.5% of
    stock the company
    holds in CCA that had been described in
    company
    filings as nonvoting stock. Based on lawyers' advice, it
    was appropriate
    for the company to vote them,
    Ferguson said.

    The ultimatum given to executives
    struck a nerve in Paul Lapides,
    director of the
    Corporate Governance Center at Kennesaw State
    University
    near Atlanta.

    "A fundamental right of stock
    ownership is the right to vote your
    stock," Lapides
    said. "So it is outrageous for anybody to tell
    someone
    to vote your stock this way or you're
    fired."

    Several experts said that there are some circumstances
    under which legal
    issues could arise over the
    ultimatum and that certain securities laws
    could be
    applied, but many said the law doesn't directly consider
    the
    action illegal.

    "His tactics and demands may
    leave something to be desired," said Allen
    Maines, a
    securities and litigation attorney with Paul,
    Hastings,
    Janosky & Walker in Atlanta. "At the end of day, while he
    was exercising
    some duress over those employees,
    he probably was not violating
    any
    law."

    "It wouldn't be a great morale builder," said Bob
    Ballow, founding
    partner with King & Ballow law firm
    in Nashville. But he added: "If you
    tell people,
    'We've got to take this action to save the company, if
    you
    don't go along you're going to be fired,' that's not
    sexual or racial
    discriminati

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • There is an old rule in Finance, equity is cheap and debt is expensive if your company goes belly up. The opposite is true for a successful company.

    • I agree. In the long run, equity is often

      more expensive than debt due to dilution.
      That's
      why I'm not sure that the two equity
      infusions
      were necessarily unmitigated
      pluses for the common
      shareholder. The one thing one might say for this kind of
      "fix"
      is that the new preferred is going to the

      current common shareholders, so in that
      sense, their
      shareholding is not as diluted
      as it might be if an
      outsider was given
      a new issuance of stock.

    • They can create loads of forward contracts(the
      legal settlement) and issue paper to those that will
      take it. They will issue paper for it's REIT
      requirement which effects future earnings per share. Issue it
      today, pay for it later. That's why I think the
      preferred or the bonds make the only sense to be involved
      in this story, they are not effected by the
      up-coming massive issuance of shares.

    • Re: Bankruptcy
      By: dgjones200
      Date:
      8/31/00 11:23 am
      "If they don't qualify as a REIT for
      1999 then they have back taxes to pay which would
      force them into bankruptcy, if there is no cash flow or
      borrowing power to cover."

      This is technically true,
      but it should be
      remembered that REIT rules
      provide that
      the dividend requirement can be covered
      by
      a payout of non-cash paying PIK
      securities,
      so in real terms, BK from this cause is
      highly
      unlikely. I want to reiterate that
      coverage of cash
      interest (pro-forma
      for merger 1.2X) is gonna be the
      key on this
      score.

    • If they don't qualify as a REIT for 1999 then they have back taxes to pay which would force them into bankruptcy, if there is no cash flow or borrowing power to cover.

    • As I understand it, the merger notwithstanding, PZN could go bankrupt if it does not qualify for a REIT in 1999. Is this in fact the case?

    • Great non-answer. Keep confusing the issues.

    • You seem to agree that the market, which votes
      with money, is not as confident in current PZN
      management and the FBOP contract as you are. You attribute
      that to market inefficiency. That sounds like wishful
      thinking.

      By the way, I doubt that Warren Buffett would ever
      be on your side. He avoids obnoxious people.

    • Please, please stop. We can all read; we can all interpret. You are picking gnat sh*t out of pepper.

    • I don't expect Dreman to say anything. The vote
      date is to close for him to announce either way. If he
      was seriously against it he would have either
      announced a position or bailed out. He is aware that the
      small investors look to him for leadership and that he
      could influnce the vote. It appears he is staying for
      the whole show. Lord knows we have all paid enough
      for the ticket.

      You make some good points in
      your post. You strike me as someone who stands up for
      a cause. PZN is not much of a cause. Just vote the
      way you think your vote will help you financial
      position. It's just a stock and if it goes up high enough
      just sell it and go on to the next
      investment.

      I believe if we have a significant turnaround there
      will be a hugh turnover in investors. I know I will be
      out of here.

    • View More Messages
 
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