Prison operator wants more ownership
Corrections Corporation of America wants to buy prisons from states, offering millions of dollars to governments in need of cash.
It's reportedly offering to buy prisons in as many as 48 states -- setting $250 million aside to do so. The offer will undoubtedly intrigue state governments looking for some quick cash.
But there's a catch here. The company wants a 20-year contract to manage the place. And it also wants to make sure the prison stays 90% full.
These terms are according to a proposal from the company obtained by the Huffington Post. Corrections Corporation is the No. 1 operator of for-profit prisons, and has mostly built prisons of its own or managed ones owned by states, the Post writes. Now, the company wants more control of state prisons.
The proposal comes at a time when a number of states are looking at selling properties to private companies to shore up funds. Prisons aren't normally on the list for consideration, although Ohio sold one of its largest prisons to Corrections Corporation last year for $73 million. Florida lawmakers just killed a bill to privatize several prisons in South Florida, a move that would have helped fill a $1 billion deficit hole.
The idea has stirred strong debate in some states. Does a state need to own correctional facilities? Is it truly cheaper to contract with a privately owned prison?
A spokesman for Corrections Corporation said the company decided to make the offer after its purchase of the Lake Erie Correctional Facility in Ohio. About 93% of the prison staff was retained under the new ownership, and the company estimates it can shave $3 million a year in costs at the prison.
"We want to build on that success and provide our existing or prospective government partners with access to the same opportunity as they manage challenging corrections budgets," said spokesman Steve Owen in an emailed statement.
The company is seeking new ways to build on the $163 million in net income and $1.74 billion in revenue it reported for 2011. Corrections Corporation already operates 66 facilities, including 46 of its own. It had $56 million in cash and cash equivalents at the end of last year.
Shares of the company have been on the rise after falling below $19 last August. Shares were down nearly 2.5% Tuesday to $23.62.
The company's proposal may be tough for some states to resist. But what about that 90% capacity mandate? Unfortunately, it won't be too hard to fill. State prisons are about 96% full on average, InvestorPlace reports, while federal prisons are at almost 140% of capacity.
There's tremendous potential here for the company. Only about 8% of prisons are privately owned, InvestorPlace reports.
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The company is planning a 10-for-1 split, which will cut its share price dramatically.
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