Providence Service CEO calls Avalon Correctional's consent solicitation an attempt to take control

By Lisa Kerner

Charlotte, N.C., Feb. 6 - Providence Service Corp. likened Avalon Correctional Services, Inc.'s planned consent solicitation to a "wolf in sheep's clothing" in a statement released on Friday.

While Avalon may appear to be concerned with corporate governance, its consent solicitation is in reality an attempt to take control of Providence, said Fletcher McCusker, chief executive officer of Providence.

McCusker said Providence will detail Avalon's ulterior motive in its consent revocation statement.

Avalon has "little or no credibility as a champion of corporate governance" given the company's historical approach to its own corporate governance issues and "its strong proclivity for related-party transactions over the past 15 years, particularly with its founder, CEO and sole director Don Smith," McCusker said in the statement.

Despite its concerns, Providence met with Avalon principals after learning last fall that Avalon upped its stake in Providence to 19.6%, according to McCusker.

Providence's concerns stem from Avalon's "colorful history as an operator of a water park, de-certified mental health facilities and community corrections programs and its adversarial relationships with various regulatory and payer organizations," McCusker said.

McCusker said Providence remains open to future constructive discussions with Avalon, but the company's board of directors "will not be intimidated, bullied or distracted by the threats and intimidation tactics of one dissident stockholder."

In January, McCusker accused Avalon of engaging in a "fishing expedition" by demanding to inspect Providence's books and records under section 220 of Delaware's general corporation law.

As previously reported, Providence adopted a shareholder rights plan in December that gives its shareholders rights to purchase shares of newly created series A junior participating preferred stock.

The rights will be triggered if a person becomes the beneficial owner of 20% or more of Providence's outstanding common stock, other than by a qualified offer.

Oklahoma City-based Avalon owns and operates private community correctional facilities and correctional programming.

Providence is a Tucson, Ariz.-based provider of home- and community-based social services to government-sponsored clients under programs such as welfare, juvenile justice, Medicaid and corrections.

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