Prison Firms to Merge in $2.9-Billion Deal

Two prison companies, CCA Prison Realty and Corrections Corp. of America, announced plans Monday to merge in a $2.9-billion deal aimed at creating a prison owner with a more aggressive growth rate.

CCA Prison would acquire Corrections Corp. in a stock swap with Corrections shareholders getting 0.875 share of CCA Prison common stock for each of their shares.

As part of the deal, CCA would also acquire a private prison owner, U.S. Corrections Corp., for $265 million.

“We can expect a 25% growth rate,” Doctor Crants, chairman of both companies, said.

Before the deal, CCA Prison, a real estate investment trust, was expected to grow at a rate of about 17% a year.

Crants, who is also the chief executive and president of CCA Prison, said he expects the acquisition of U.S. Corrections to contribute 5 cents to 6 cents per share in 1998. Further accretion is expected in future years, as the stock swap is expected to close Jan. 1, 1999.

The REIT would pay a special dividend of $2 a share in 1999 on top of its regular dividend, which Crants said would be at least $1.79 per share.

Still, the prices of both companies’ stocks fell Monday and were among the largest percentage drops on the New York Stock Exchange. Corrections fell 13%, losing $4.25, to close at $29.25. CCA Prison fell 7%, or $2.63, to close at $37.50.

“It’s a very complicated deal,” said James Macdonald, of First Analysis. “It certainly hasn’t left a lot of clarity with investors.”

The confusion, analysts said, is related to the fact that CCA Prison was spun off from the prison-management company Corrections only about a year ago. Now, CCA is acquiring that management company.

Analysts said growth and income funds that own shares in Corrections may have no interest in owning REIT stock.

Under the deal, a new, private company would manage CCA’s properties. REITs are precluded by law from managing the properties they own, but instead do not have to pay taxes.