GEO and Cornell Announce Merger
(04/19/2010)

BOCA RATON, Fla. — The GEO Group and Cornell Companies, two of the largest players in the private correctional detention, secure treatment and residential programming sector, will merge operations after directors agreed a multimillion agreement.

Headquartered in Boca Raton, GEO will acquire Cornell, which is based in Houston, for stock and/or cash at an estimated enterprise value of $685 million. The enterprise value (excluding cash on hand) includes approximately $300 million in debt, which GEO will assume.

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Following the merger, the combined company will manage or own 97 correctional and detention facilities with a total design capacity of approximately 76,000 beds. The company will also operate 32 behavioral health facilities with a total design capacity of approximately 5,000 beds.

“This merger represents a compelling strategic fit for both of our companies and positions us well to meet the increasing demand for correctional, detention and residential treatment facilities and services,” says George Zoley, GEO chairman and CEO.

GEO operates a total approximately 60,000 beds in 61 facilities throughout the world. The company’s U.S. division oversees the operation and management of more than 53,000 correctional and detention beds in 15 states for federal, state and local government agencies.

“The combined enterprise should have the scale, geographic reach and operating leverage to achieve meaningful cost synergies, grow revenue and increase profitability,” says James Hyman, chairman, president and CEO of Cornell. Cornell operates 68 facilities in 15 states with a total capacity of nearly 21,000 beds.

Cornell’s adult secure and adult community-based divisions will be integrated into GEO’s existing U.S. corrections operating structure. Cornell’s Abraxas youth and family services division will be integrated with GEO behavioral healthcare services platform, which is operated by the company’s GEO Care division.

GEO expects to the merger to increase total annual revenues by approximately $400 million and to generate up to $15 million in annual cost efficiencies, according to the company.

“The combination of our two companies creates a company with revenues of approximately $1.5 billion, enhanced scale, diversification and complementary service offerings,” Zoley says. The merger is also expected to substantially increase GEO’s Earnings Before Interest, Taxes, Depreciation and Amortization, net income, and free cash flow on an annualized basis.

BNP Paribas provided $150 million of committed financing combined with GEO’s current debt availability to finance all payable cash considerations.

The merger is expected to close in the third quarter, subject to the approval of the GEO and Cornell shareholders. Federal regulatory agencies must also approve the transaction.

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