The GEO Group Closes $730 Million Merger with Cornell Companies
August 12 2010 - 5:45PM
Business Wire
The GEO Group (NYSE: GEO) (“GEO”) a private provider of
correctional, detention, and residential treatment services to
federal, state and local government agencies around the globe
announced today the successful closing of its previously announced
merger with Cornell Companies, Inc. (NYSE:CRN) (“Cornell”), a
private provider of corrections, treatment and educational services
outsourced by federal, state and local governmental agencies. GEO
Group has acquired Cornell for stock and cash at an estimated
enterprise value of $730 million, including the assumption of
approximately $290 million in Cornell debt, excluding cash.
In connection with the merger, GEO will issue approximately 15.8
million shares in exchange for 80% of the outstanding shares of
Cornell common stock. The remaining 20% of the outstanding shares
of Cornell common stock will receive cash consideration totaling
approximately $85.0 million. Following the merger, GEO will have
approximately 65.0 million diluted shares outstanding.
George C. Zoley, Chairman and Chief Executive Officer of GEO,
said “This strategic merger marks an important milestone for GEO
and better positions the Company to meet the increasing demand for
correctional, detention and residential treatment facilities and
services. This transformational event creates a stronger company
with revenues of approximately $1.5 billion, enhanced scale,
diversification, and complementary service offerings.”
GEO’s Expanded Operations
Following the merger, GEO now manages and/or owns 119
correctional, detention and residential treatment facilities with a
total design capacity of approximately 81,000 beds and eight
non-residential service centers with a total service capacity of
approximately 1,400.
Transaction Financing
As previously announced, GEO has closed on a new $750.0 million
Senior Credit Facility comprised of a five-year, $150.0 million
Term Loan A initially bearing interest at LIBOR plus 2.50%; a
six-year, $200.0 million Term Loan B initially bearing interest at
LIBOR plus 3.25% with a LIBOR floor of 1.50%; and a five-year
$400.0 million Revolving Credit Facility (the “Revolver”) initially
bearing interest at LIBOR plus 2.50%.
GEO’s new Senior Credit Facility was used to repay borrowings
outstanding under GEO’s previous Credit Facility and Term Loan B;
fund the cash consideration and transaction-related expenses in
connection with the Cornell merger; and repay Cornell’s current
senior debt of approximately $180 million. Following the closing of
the Cornell merger, GEO’s new Term Loan A and Term Loan B are fully
funded, and GEO expects to have approximately $220.0 million in
borrowings outstanding, approximately $50.0 million in letters of
credit, and between $120.0 million and $130.0 million in available
borrowing capacity under the Revolver.
Financial Impact
The merger is expected to increase GEO’s total annual revenues
by approximately $400 million to approximately $1.5 billion. The
merger is also expected to substantially increase GEO’s EBITDA, net
income, and adjusted funds from operations (formerly referred to as
adjusted free cash flow) on a fully annualized basis. GEO
reiterated today its previously guided annual cost synergies of
$12.0 million-$15.0 million. As previously disclosed, GEO expects
the merger to have a neutral impact on its pro forma 2010 earnings
per share excluding one-time transaction-related expenses and
transitional costs and to become accretive to pro forma earnings in
2011.
Financial and Legal Advisors
BofA Merrill Lynch and Barclays Capital acted as GEO’s joint
financial advisors. Akerman Senterfitt served as GEO’s legal
advisor. Moelis & Company acted as Cornell’s exclusive
financial advisor. Hogan Lovells US LLP served as Cornell’s legal
advisor.
About The GEO Group, Inc.
The GEO Group, Inc. is a world leader in the delivery of
correctional, detention, and residential treatment services to
federal, state, and local government agencies around the globe. GEO
offers a turnkey approach that includes design, construction,
financing, and operations. GEO represents government clients in the
United States, Australia, South Africa, and the United Kingdom.
GEO’s worldwide operations include the management and/or ownership
of 119 correctional, detention and residential treatment facilities
with a total design capacity of approximately 81,000 beds,
including projects under development as well as eight
non-residential service centers with a total service capacity of
approximately 1,400.
This press release contains
forward-looking statements regarding future events and future
performance of GEO that involve risks and uncertainties that could
materially affect actual results, including statements regarding
estimated earnings, revenues and costs and our ability to maintain
growth and strengthen contract relationships. Factors that could
cause actual results to vary from current expectations and
forward-looking statements contained in this press release include,
but are not limited to: (1) the risk that the businesses will not
be integrated successfully or that such integration may be more
difficult, time-consuming or costly than expected; (2) the risk
that the expected increased revenues, EBITDA, net income and funds
from operations may not be fully realized or may take longer to
realize than expected; (3) the risk that the cost synergies from
the transaction may not be fully realized or may take longer to
realize than expected; (4) any difficulties encountered in
maintaining relationships with customers, employees or suppliers as
a result of the transaction; (5) GEO’s ability to successfully
pursue further growth and continue to enhance shareholder value;
(6) GEO’s ability to access the capital markets in the future on
satisfactory terms or at all; (7) risks associated with GEO’s
ability to control operating costs associated with contract
start-ups; (8) GEO’s ability to timely open facilities as planned,
profitably manage such facilities and successfully integrate such
facilities into GEO’s operations without substantial costs; (9)
GEO’s ability to win management contracts for which it has
submitted proposals and to retain existing management contracts;
(10) GEO’s ability to obtain future financing on acceptable terms;
(11) GEO’s ability to sustain company-wide occupancy rates at its
facilities; and (12) other factors contained in GEO’s Securities
and Exchange Commission filings, including the forms 10-K, 10-Q and
8-K reports.
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