Activist investor Ackman plows into CCA

After proxy battle with Target board, hedge fund manager becomes prison operator's largest investor

The hedge fund run by activist investor Bill Ackman has acquired a 9.5 percent stake in Corrections Corp. of America, calling the prison operator one of the best real estate plays in the current economy.

The stake, which has been assembled since the end of the second quarter, is worth more than $270 million and makes Ackman’s Pershing Square Capital Management by far the largest shareholder of Nashville-based CCA. No other investor owns more than 5 percent of the company.

At a New York investor conference earlier this week, Ackman said CCA shares should trade between $40 and $54, almost double where they are today. Referencing the recent Galleon Group insider trading arrests, he also joked that the company is “a hedge against your hedge-fund business, because as the SEC ramps up ...”

Pershing Square’s filing does not explicitly indicate Ackman is out to shake up things at CCA, but history suggests he is likely do so at some point. Earlier this year, the veteran investor lost his bid to take four board seats at Target, a battle that is estimated to have cost both sides a combined $21 million.

Contacted by this morning, Ackman declined to comment further on his new stake. Calls to CCA officials were not returned.

It’s not Ackman’s first dalliance with Nashville-based companies or prison operators. With his previous fund, Gotham Partners, he acquired almost 6 percent of Prison Realty Trust as that company was preparing to merge part of its operations with CCA in early 2000.

And Ackman made local news about three two years ago when he took a large stake in Ceridian, the parent of Brentwood-based Comdata, and pushed for a break-up of the company. His communications with Comdata’s then-CEO Gary Krow led to Ceridian firing Krow in the spring of 2007.

Pershing Square, which manages more than $2 billion, often invests in companies with a solid real estate angle and is known for making big moves in and out of a small number of stocks. It has recently dabbled in other real estate plays: In the spring of this year, Ackman and his team liquidated their $100 million-plus stakes in struggling retail REIT General Growth Properties – where Ackman now sits on the board – as well as Denver-based Apartment Investment and Management Co.

One interesting note: One of the tactics Ackman pushed Target’s executives to consider was spinning off the company’s real estate holdings into a real estate investment trust that would lease the buildings back to the company. At the end of last year, CCA owned almost 50 properties valued at $2.5 billion, but it should be noted that various government agencies have purchase options for 10 of those.

Shares of CCA (Ticker: CXW) are up about 1 percent in Thursday afternoon trading at $25.48. Year to date, they’re up about 55 percent.