NASHVILLE, Tenn., April 20 /PRNewswire/ -- Corrections Corporation of
America (NYSE: CCA), a prison management company, and CCA Prison Realty Trust
(NYSE: PZN), a prison real estate investment trust (REIT), announced today
that they have signed a definitive agreement to merge. Under the terms of the
agreement, holders of CCA common stock will receive .875 share of PZN common
stock for each common share of CCA owned.
When completed, the merged companies will operate as a REIT with
approximately $4 billion in total market capitalization, based on current
market prices. Doctor R. Crants, chairman of both CCA and PZN, will be
chairman and chief executive officer of the combined company. Once closed,
the CCA/PZN transaction is expected to be immediately accretive to the REIT's
FFO per share.
The merger has been approved unanimously by the independent board members
of CCA and PZN. Consummation is planned for January 1999, subject to
customary conditions, including approvals by regulatory and governmental
agencies and the shareholders of both companies.
In addition, CCA and PZN also announced that they have acquired the assets
of U.S. Corrections Corporation (USCC), a privately held prison management
company based in Louisville, Kentucky. CCA acquired USCC's management
contracts to operate correctional and detention facilities for approximately
$10 million in cash. Immediately after the CCA purchase, USCC was merged into
PZN for approximately $147 million in cash plus the assumption of
approximately $108 million of debt.
"Each of these transactions, the merger and the acquisition, is
significant," said Crants. "They represent unprecedented historic and
economic value for our companies. They exemplify our innovation and
flexibility while demonstrating our commitment to enhancing the interest of
our respective shareholders.
"The USCC acquisition reflects the relative strengths of CCA and PZN.
USCC had the largest collection of prison beds owned by a privately held
company, all of which are a healthy addition to PZN's portfolio. With USCC,
PZN increased its owned beds by 43%, from 12,214 to 17,489. More importantly,
with this $255 million purchase PZN has met its full-year 1998 asset
acquisition objective and did so leaving its considerable CCA facility
pipeline intact. The USCC transaction is expected to be immediately accretive
to PZN's FFO per share.
"USCC's contracts and geographic diversity complement CCA's existing book
of management business by adding eight facilities and two new states to its
service area. We welcome their operations into our company," Crants
"The merger of CCA and PZN will allow the respective shareholders of both
companies to benefit from every type of private sector/public sector
partnership: facilities owned and managed by CCA, those owned by government
and managed by CCA, those owned by PZN and managed by CCA, and those owned by
PZN and managed by government. We are enthusiastic about the possibilities
for growth in all of these areas.
"The resulting company structure will combine the tax and dividend
benefits of a REIT with the high growth prospects of a quality growth company
to produce an exceptional investment opportunity."
The former USCC properties that PZN bought include four in Kentucky,
one in Ohio and two in North Carolina. The North Carolina prisons currently
are under construction, and two of the Kentucky facilities are being expanded
and upgraded to medium security. The Ohio facility is a jail managed by the
local sheriff, making it the first REIT owned, government operated facility in
history. Combined, the facilities PZN acquired house 5,275 beds.
The management contracts purchased by CCA include the four PZN-acquired
operating facilities in Kentucky, as well as one each in Florida and Texas
that are owned by government. CCA also purchased the right to manage the
two North Carolina prisons that currently are under construction. Total beds
operating or being built under the management agreements equal 5,743.
CCA/PZN Merger Benefits
The merger of CCA and PZN combines their growth rates to create a REIT
with the ability to expand funds from operation, or FFO, at a high rate on a
The proposed structure gives shareholders of both companies the benefit of
dividends associated with PZN's status as a REIT. In addition to PZN's
regular dividend, during the fourth quarter of 1999, PZN will pay out CCA's
accumulated earnings and profits in a special, one-time dividend expected to
exceed $2.00 per share.
The transaction will give the combined company a stronger balance sheet.
It is expected to reduce overall cost of capital, as well as enhance liquidity
and public float.
Significant marketing synergies are expected in the development of new
business. Combining the resources of CCA and PZN will heighten their
effectiveness in presenting comprehensive proposals to government for all
facets of the business: designing, building, owning, leasing and managing
Organizational Structure of Merged Companies
After the merger, management of the REIT's facilities and contracts will
be undertaken by three newly formed private companies, all operating under the
name of Corrections Corporation of America.
For existing contracts in facilities not owned by PZN or CCA,
two third-party service subsidiaries will be formed. One subsidiary will
manage the adult prison contracts and the other will manage jail and detention
facility contracts. PZN will have 95% of the economic interest in each
subsidiary, and the remaining 5% will be held by investors and the management
and employees of each subsidiary.
For contracts in facilities currently owned by PZN and CCA, as well as for
all future facilities, a separate management company will be formed. PZN is
expected to have 9.5% economic interest in it, with the balance held by
investors and the management and employees of that company. The
investor/management group will agree to pay PZN in installments for the right
to manage its properties.
"While the REIT rules are complex," Crants said, "in essence PZN will move
forward as the publicly traded investment vehicle. 'New' CCA will continue to
operate as its management company with the same name, same management team,
same reputation and same industry leadership position."
Under the terms of the CCA/PZN merger agreement, CCA will merge with and
into PZN in a tax-free reorganization. The exchange ratio for CCA common
shares will be fixed at .875 PZN share for each CCA share, with no adjustment
mechanism for changes in stock price. It is expected that most outstanding
CCA stock options and all deferred stock awards will be fully vested and
converted into CCA stock just prior to closing, then converted at the exchange
ratio into PZN shares.
Shares in CCA's ESOP also will be converted into PZN stock at the exchange
ratio. It is anticipated that those shares then will be transferred into a
newly formed 401(k) Plan for employees.
J.C. Bradford & Co. has acted as financial advisor for PZN in its
consideration of the proposed merger, and Stephens Inc. has acted as financial
advisor for CCA.
CCA manages prisons and other correctional institutions for governmental
agencies. The company is the industry leader in private sector corrections
with 62,487 beds in 77 facilities under contract in the U.S., Puerto Rico,
Australia and the United Kingdom. CCA's full range of services includes
finance, design, construction and management of new or existing facilities, as
well as long-distance inmate transportation.
PZN acquires and owns correctional and detention facilities from both
private prison managers and governmental entities. The company has elected to
be treated as a real estate investment trust under the Internal Revenue Code.
PZN currently owns 20 facilities in nine U.S. states.
This press release contains forward-looking statements that involve
various risks and uncertainties. Actual results could differ materially from
those contained in these forward-looking statements due to certain factors,
including business and economic conditions and availability of financing.
These and other risks and uncertainties are detailed in the company's reports
filed with the SEC.
SOURCE Corrections Corporation of America