I wish I could tell you that the company fought the good fight, and the activist funds let him be. I wish I could tell you that – but corporate America is no fairy-tale world. He never said who did it, but we all knew. Things went on like that for awhile – corporate governance consists of routine, and then more routine. Every so often, the IR Guy would show up with fresh bruises. The funds kept at him – sometimes he was able to fight ‘em off, sometimes not. And that’s how it went for the IR Guy – that was his routine. I do believe those first two years were the worst for him, and I also believe that if things had gone on that way, this place would have got the best of him. – Not exactly from The Shawshank Redemption
Its a bit early to ascribe Corrections Corporation of America‘s (CXW) announcing of its looking at a change to a REIT structure to a couple of activist funds, but we wrote the headline anyway. Here’s the timeline:
1. April 5, 2012. Corvex Management and Marcato Capital Management file a Schedule 13D announcing that they believe that CXW is undervalued and an attractive investment. They said they had conversations and meetings with each other and the management and members of CXW’s board to discuss CXW and would seek to have additional conversations with more people. In particular, they discussed CXW’s conversion to a real estate investment trust (“REIT”). They believed that CXW convert to a REIT without material disruption or changes to current operations and would result in increased value for shareholders based on current trading multiples of comparable publicly traded REITs. Closing price: $28.99.
2. May 3, 2012. CCA announces that it is assessing a REIT conversion. Closing price: $28.07.
3. May 4, 2012. Corvex and Marcato make an amended filing. Closing price: $28.25.
4. May 7, 2012. CXW files 10-Q with nary a mention of the REIT conversion. Subsequent event discussion? MD&A? Anything? Nope. Closing price: $28.14.
5. May 11, 2012. CXW announces it is initiating a dividend. Paydirt for big shareholders. Their IR guy said the CEO said “We believe the initiation of the dividend reflects our confidence in the future of our business and our commitment to generating value for our shareholders.” Closing price: $27.77.
6. May 21, 2012. Corvex and Marcato make another amended filing, updating ownership info. Closing price: $26.28.
7. August 9, 2012. CXW files an 8-K with an earnings release and 10-Q with boring, equivocating language about the possibility of a REIT conversion. CXW said it filed a request with the IRS for a private letter ruling and they’ve had discussions with the IRS, so it appears to be in process. Closing price: $32.38.
8. September 5, 2012. Corvex and Marcato make another amended filing and declaring a ceasefire with CXW.
The Reporting Persons commend the Issuer and its board of directors on the significant progress made toward REIT conversion (“Project REIT’) as reported in the Issuer’s most recent press release and conference call on August 8, 2012 and on recent positive business momentum including the recent Arizona Department of Corrections contract award. The Reporting Persons believe that the board of directors and management of the Issuer are committed to pursuing Project REIT with the goal of achieving REIT status for calendar 2013 and are taking appropriate and timely steps toward achieving this goal. The Reporting Persons believe that completion of Project REIT will enhance value for all of the Issuer’s shareholders by lowering the Issuer’s cost of capital, broadening the shareholder base and allowing the Issuer to more aggressively pursue accretive growth opportunities. In light of the foregoing, the Reporting Persons have terminated their letter agreement (the “Agreement”) entered into on March 26, 2012, thereby ceasing to be a group under the Securities Exchange Act of 1934, as amended (the “Group Termination”).
Closing price: $34.06.
Translation: We won, but we aren’t going away if this is a head fake to get us off your back.