Why Corrections Corporation of America Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Corrections Corporation of America (NYS: CXW) jumped 12.5% in early trading after an activist investor announced a position. Shares have settled at a 5% gain as the day went on.

So what:Corvex Management joins Marcato Capital Management as two hedge funds with significant positions in the company. The two companies are trying to convince management to convert the company to a real estate investment trust for tax purposes.

Now what: A REIT has tax advantages over a traditional corporation, and the two funds think the structure could "significantly lower cost of equity capital." The move could be good for shareholders, but a final determination has yet to be made. The bump that occurred today may not last in the short-term so I wouldn't be afraid to wait out traders who jumped into the stock today if you're looking to buy.

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At the time thisarticle was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.Motley Fool newsletter services have recommended buying shares of Corrections Corporation of America. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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