In the CCA/PZN merger transaction, great care was taken to make sure that the new OPCO was legally separate from new PZN, so new PZN could be a REIT with the rules stretched to the limit. While it appears that the two companies combined have positive cash flow (although on a pro-forma basis it goes negative because of the new preferred dividends), their separateness is now killing them. OPCO didn't go as predicted, and is essentially bankrupt even with the adjustments made earlier this year. It can't pay its rent to PZN, and is close to default (or has defaulted)on its debt to outside parties (not to mention its debt to PZN). PZN can't give it any more relief without going (further) into default on its various debt obligations. This is all pretty well explained in the proxy.
While the combined companies may be OK, as long as they are separate, they are essentially on the verge of bankruptcy at worst, or at best continuing default.
I wouldn't mind seeing PZN call its OPCO note in default and foreclose, taking back all the management contracts (RP would love this).That would have the same effect as the merger (and would give the current OPCO shareholders nothing), but unfortunately might jeopardize the contracts themselves. Too messy.
The proposed merger is absolutely necessary (as some of us "yahoos" have been saying since before Blackstone ever heard of PZN), and will happen with or without Blackstone.
Some time ago you mentioned that the value of the PZN fixed assets has been stepped-up twice. Can you give me a little bit of the history? I would love to be able to figure out the original cost or replacement cost of the facilities.
I believe the best valuation analysis at this time would be to compare the equity valuation to the cost of the facilities less debt. If the market valuation is at a significant discount to the true value of the fixed assets then the stock is a good buy at current levels. If not then not. I did not see this issue addressed in the proxy.
A market valuation significantly lower than the value of the assets would also show that the company's problems are primarily the result of inefficient operations that could be reformed by new management.
Blackstone would not normally invest for an 18% return. My guess is that their internal target is 25%-30% on this investment. That would imply significant appreciation potential for the common stock.
You argue that a merger (Blackstone or other) is unavoidable. But the consensus of this board is that the merger leaves current shareholders with nothing. Why merge if it is equivalent to bankruptcy.
PZN could defer OPCO payments to the extent necessary to keep OPCO afloat, so that neither PZN nor OPCO goes bankrupt. If the merger is voted down, then the "pro-forma" preferred dividends are gone, and a positive cash flow is preserved. This is better than bankruptcy and it is better than a merger that is the economic equivalent to bankruptcy for current PZN shareholders.
You have to show that there is some material economic value to current PZN shareholders in the proposed merger. Otherwise, you can not make your case that merger is inevitable. We can vote not, avoid bankruptcy, and replace management. Even a break-even cash flow preserves the chance that the economics will improve in the future. That is better than nothing.