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Prison Firms to Merge in $2.9-Billion Deal

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From Reuters

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.

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“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.

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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.

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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.

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