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September 21, 2006
Geo to acquire CentraCore
Geo to acquire CentraCore
By Stephen Pounds
Palm Beach Post Staff Writer
Thursday, September 21, 2006
The Geo Group Inc. will buy CentraCore Properties Trust, a correctional real estate investment trust, for $356 million and assume CentraCore's $40 million in debt, the companies said Wednesday.
The Boca Raton-based private prison and mental-health center operator will get 13 prisons from CentraCore totaling 8,071 beds, of which 11 facilities with 6,945 beds are now leased to Geo under sale-lease back agreements. The deal is expected to close in late 2006 or early 2007 and is subject to the approval of CentraCore's shareholders and federal regulatory agencies.
CentraCore shareholders will receive $32 a share, a 13 percent premium over CentraCore's (NYSE: CPV) opening price Wednesday. Shares in Palm Beach Gardens-based CentraCore rose during the day at 10 times normal trading volume, closing up $3.32 at $31.70 a share.
Geo (NYSE: GEO) fell initially on the announcement but closed at $45.05, up 8 cents a share.
CentraCore Chief Executive Chuck Jones said he expects shareholders to approve the deal.
"Our responsibility was to maximize shareholder value ... and the preliminary feedback from shareholders is positive," Jones said.
While the offer is at a premium to Geo's stock price, it falls short of what it would cost to replace those prison and hospital beds if Geo had to do that for all of CentraCore's properties, said analyst Stephanie Krewson of Richmond, Va.-based BB&T Equity Research. Even so, she recommends shareholder approval.
"We would not expect one of Geo's competitors to launch a competing bid," Krewson said in a report.
As it announced the CentraCore deal, Geo issued its forecast for 2007, projecting post-acquisition earnings in a range from $2.40 to $2.60 - well short of Wall Street's expectation of $2.82 a share.
"The initial reaction of shareholders was to the lower guidance compared to the Street's expectations," said analyst Patrick Swindle of Nashville-based Avondale Partners. "But the positive is the strategic benefit from owning CPV."
In today's market, it is cheaper for Geo, which has 62 facilities worldwide under management or development, to build and own the prisons it operates than to sell them to CentraCore and lease them back. But under its arrangement with Geo, CentraCore has an option to buy Geo-financed property and negotiate a higher lease-back, or rental, rate.
Geo CEOGeorge Zoley said the merger is about dumping a deal made in the 1990s when Geo and CentraCore were spinoffs of security giant Wackenhut Corp.
"This is about regaining ownership of our facilities. They were sold at a time when we were a subsidiary of Wackenhut and we needed capital, and this was the only way to get it," Zoley said. "Now we can obtain capital from the equity markets or bank financing."
The buyout will be financed with $57 million in cash and $360 million in debt, Geo said.
http://www.palmbeachpost.com/business/content/business/epaper/2006/09/21/a1d
_geo_0921.html
Posted by lois at September 21, 2006 08:50 PM