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CCA Gets Tangled in Financial Quagmire
Corrections Corporation of America said it is contesting an $8.1 million request for payment from Merrill Lynch & Company related to its hiring of the investment firm in late 1999 for advice on a company restructuring.
In a filing with the Securities and Exchange Commission, CCA also said its insurers have refused to cover damages from lawsuits by employees and prisoners that seek more than $50 million. The lawsuits include one brought by CCA employees in 1998 seeking more than $30 million related to a stock ownership plan and another by a woman demanding $20 million for an alleged assault by two former employees of CCA's TransCor unit. A third suit deals with a jury verdict of more than $3 million stemming from charges of mistreatment against juveniles at a South Carolina prison. All three cases were previously reported in PLN .
In the Merrill Lynch dispute, CCA, then called Prison Reality Trust, and a former sister entity, had both retained the investment firm as they faced problems raising money for growth and a looming deadline to pay a special dividend. CCA said Merrill Lynch claims last year's merger of the company and the affiliate constitutes a restructuring transaction that should have resulted in fees. But CCA said the claims are not valid and it would contest any legal action initiated by Merrill Lynch.
CCA let Merrill Lynch go in 2000, after two proposed transactions for investors to buy stakes in the company in exchange for a cash infusion fell apart. CCA then decided to merge with its affiliate unit on its own.
CCA also reached an agreement in October, 2000, to settle eight shareholder lawsuits for about $123 million. In the separate agreement, CCA is expected to give the plaintiffs an approximated 5 percent stake, or 17.2 million shares, in addition to any shares the plaintiffs already own. The company didn't admit any wrongdoing in connection with the lawsuits, which were combined from about 17 separate shareholder actions filed since mid-1999.
Terms of the settlement agreement call for plaintiffs to receive about $47.5 million in cash, and common stock valued at about $75.4 million by CCA. The company is required to pay additional cash or issue additional shares if its stock price doesn't hit $4.38 by August 31, 2001. The company's shares have recently been hovering around $0.80 to $0.90 per share. That's a major plunge from the per share high in the mid-$40 range back in 1998 when private prison company stocks were a hot Wall Street item.
Barry Holman, policy analyst with the National Center on Institutions and Alternatives, a Washington, D.C. think tank promoting alternatives to prisons, said the state of the private prison industry shows "they haven't been successful at what they're doing, that they haven't done well from a financial savings standpoint, and they haven't done well from prisoner safety and public safety standpoints."
Sources: Bloomberg News ;The Wall Street Journal .
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