PICO Annual Meeting – The Max Webb Show.

Leading up to the 2016 PICO Annual Meeting, shareholders were in a disgusted mood. The Legacy PICO Board had committed one shareholder abuse after another. PICO stock price bounced around all-time lows. RPN had just revealed that John “The Juicer” Hart and Kenneth “The Slug” Slepicka had perpetrated an undisclosed related transaction that made both men conflicted.

At the Annual Meeting, Juicer spread disinformation and deception and implied that a shareholder-led conspiracy stymied his ability to create value. Carlos “NACD-Decorated Horse Thief” Campbell spun a prolonged lie to PICO owners with a straight face, thereby earning the moniker we have bestowed upon him. Raymond “Delaymond” Marino pretended like everything was under control and everyone was focused on creating value for shareowners. Stellar corporate governance, imminent assets sales, return of capital – all in the offing, Delaymond assured us.

In summary, the 2016 PICO Annual Meeting was the epitome of the Principal – Agent Problem manifested in real life.

(Bloomberg recently reported that protestors in Venezuela have begun hurling containers of feces at government forces. Called “poopootov cocktails,” these projectiles are intended to disgust, insult and repel. It is a good thing such events were not reported before the 2016 PICO Annual Meeting; a fecally enterprising shareowner might have taken aim at Juicer.)

2017 – The Max Webb Show

The PICO 2017 Annual Meeting was polar opposite. There were no incompetent or self-interested Directors in the room. Assets have been sold. A micro return of capital has taken place and profuse promises (which we believe are earnest) have been made to return more. PICO stock has reached $17 per share. UCP and its prodigal CEO Dustin Bogue are poised to be someone else’s problem.

It wasn’t exactly an audience with the Dalai Lama. But the 2017 Annual Meeting consisted of good shareowners communicating with good Directors, and everyone had good thoughts and good intentions in mind.

PICO’s CEO Max Webb did 99% of the non-Vidler talking at the Annual Meeting – and some of the Vidler talking. He was composed, articulate and at ease with his new, elevated responsibility. Mr. Webb showed us why his continued presence at PICO benefits shareowners – although he is not coming cheap. Mr. Webb has mastery of both UCP and the Vidler assets and is clearly the best choice to lead the liquidation process. PICO is no ordinary liquidation.

Dorothy Timian-Palmer impressed everyone with her technical knowledge, as she always does. She adroitly fielded questions about Vidler’s water assets, with added commentary on the largest ones.

Corporate costs have come down since the last update a few months ago. Annual overhead was estimated at a $9.9 million run rate on the Q4 earnings call. This has been reduced to $9.1 million currently. Once UCP is transacted and certain Vidler projects are completed, Mr. Webb predicts general corporate expenses will come down still more.

The biggest disappointment of the 2017 Annual Meeting was the 9,993,802 PICO shares that approved the fusion the CEO/Chairman roles. We have articulated our opposition to this proposal. We feel it is structurally unsound, we don’t feel Mr. Webb earned the right to be Chairman and it rewards bad behavior. The flip side is that Daniel Silvers would have made an excellent Chairman. He has proven his shareholder orientation, he is unafraid in the Boardroom and he is unconflicted by compensation issues. Mr. Silvers also deserved the Chairman slot after leading the Palace Coup, which expelled the merchants from the temple.

Winston Churchill once said, “The best argument against democracy is a five minute conversation with the average voter.” We allocate the 9,993,802 “For” votes on this proposal into the same category.

Andrew “Andy” Shapiro appropriately asked the Board to be sensitive to base Executive Compensation as PICO is reduced in both size and complexity. We have been saying the same thing for a long time. Andy is right, but it will never happen – not in a million years.

Return Of Capital – Micro

It’s so small, you may have missed it. PICO returned capital to owners in Q1 2017. The 10-Q reveals that PICO bought back 13,400 shares at an average price of $13.70 per share, worth $184,000.

On the RPN Comment Board, many readers have been vocal about their desire for capital return. However, due to the Century/UCP negotiations, PICO was blacked out from repurchasing shares for the last several months. PICO has provided effusive assurances that more capital return is coming. Any such measure will be less effective with a $17 stock price, but most investors expect continued share buybacks and a Dutch Tender is probably in our future.

This brings us to an important question. How much capital does PICO have to return to owners? Let’s break it down.

PICO publicly stated on the Q4 earnings call that there was $20 million available for return of capital. At the close of the UCP deal, which is expected by the end of Q3, PICO will receive about $55 million in cash. Sixty one days after deal close, PICO can sell about 1.25 million Century shares. At the current price of $26 per Century share, such a transaction would yield another $32 million.

By the end of 2017, PICO could potentially return about $100 million to owners.

By the end of Q1 2018, PICO can sell the tag end of its Century position. At today’s price of $26, this sale of about 1.15 million shares would yield another $30 million. By Q1 2018, PICO could potentially return about $130 million to owners.


We don’t want to get too excited. And we don’t want to get you too excited. But a few shareholders speculate that PICO won’t be around in 2 years. These shareholders believe that with UCP jettisoned, a strong economy in Vidler’s markets and a continued positive outlook for water assets, “patient capital” will bid for the entire Vidler portfolio. These owners theorize that a patient investor will buy the whole Vidler enchilada, cut overhead and public company expenses, preserve the Vidler employee core, and patiently liquidate the water assets piecemeal.

Such a scenario makes greater sense with the high potential for corporate tax reform which, in one swoop, will reduce the value of PICO’s (and all corporate America’s) NOLs. With the NOLs suddenly worth less, an “Ownership Change,” as defined by Section 382 of the Tax Code, does not produce such a scary reduction in value.

We have no knowledge of such a scenario. It is one possible scenario for PICO’s future. There are many others.

In conclusion, this is a different PICO. Corruption and incompetence have been replaced by shareholder orientation and capability. As we have been saying for several months, the future for PICO owners looks bright.

Century – Locked And Loaded

On May 8, Century Communities announced that it will offer $300 million of Senior Notes due 2025. Century will use a portion of proceeds to repay its revolving credit facility and the remainder will go to “general corporate purposes, which may include among other things, working capital and acquisitions, including the previously announced merger transaction with UCP, Inc.”

Go Century!

25 responses to “PICO Annual Meeting – The Max Webb Show.

  1. Complacency

    I am reminded of PICO’s chairman last year strongly advising against borrowing money to buy shares back (below $10!!!). I am reminded of the many comments on this blog, some in “screaming from the rooftop” fashion, to aggressively buy shares back with the stock price’s sustained sub-$10 pricing. This is pure non-owner minded complacency. Any right minded board without an executive PICO team could have put a for sale sign on the assets that have been sold. Let’s not compare PICO to what it was, but what it should be: a shell with minimal administrative function. $10mm in corporate overhead is totally fucking insane for this useless holding company vehicle. The notion that Webb has mastery over the assets or is the best man for the job is, with all due respect, is mischaracterizing the reality of this situation. YOU DO NOT EVEN NEED A PICO CEO TO SELL OFF THESE ASSETS!!! Ask around. The executive roles at PICO are functionally part time, and should be non-incentive based administrative salaried positions paying no more than $250k. Beside cleaning up a lot of drama over the last few years (many thanks to RPN and many others for that!), not much of any difficulty has occurred. No impressive achievements worthy of bonus has occurred. Baseline activity at best has occurred. At this point PICO should have a mandate to finish off UCP ASAP liquidate Vidler ASAP in a race to shut down this excessive and damaging and totally unnecessary PICO overhead. By doing this, PICO will reduce the time and market risk of waiting too long. Tides change, and when they do, if Vidler is not gone it will collect dust and PICO will continue to suck at the teat of PICO shareholders for years to come – suck suck suck suck suck, oops sorry, I’ll reduce my take a little, suck suck suck suck, oh here’s a little buyback or maybe a special dividend, suck suck suck. DON’T GET COMPLACENT PEOPLE. Nice guys who don’t sell Vidler fast enough are not much better than bad guys who don’t.

    • Thanks for your sharp insights, Complacency. You are right, there have been many strong advocates for share repurchase, including the gentleman at the 2016 Annual Meeting who implied PICO should borrow to repurchase, which Ray Marino dismissed. Given that PICO’s stock was at $10 in July 2016 and PICO has now sold over $35 million in assets and is poised to sell over $100 million more, it is a shame that Mr. Marino played it safe. Hindsight is 20/20, but managers are responsible for their decisions and Mr. Marino royally botched that one.

      We agree that there is a glaring Principal – Agent problem at PICO. This situation is made worse by the Compensation Committee’s failure to include a time value component in the Employment Agreements of Messrs. Webb and Perri. Thus far, the Board has proven itself to be diligent in monetizing assets and loyal to shareholder interests. Whether this will continue as the number of items at the PICO garage sale shrinks remains to be seen. Human nature would indicate that PICO would start to slow walk asset sales once the end became nearer. No executive wants to liquidate themselves out of a job and given the amount of effort Messrs. Silvers, Cates and Speron put in during 2016, basic human nature would encourage them to seek reversion to the mean and prolong this process so they get some easy years and collect some easy compensation.

      We are not saying any executive or director will do this. We are saying that if self-interest is strictly employed, those are the likely results. It is our hope that the presence of two large shareowners on the Board, namely Messrs. Speron and Bylinsky, as well as a vigilant shareholder base, will negate any Exeuctive’s or Director’s pursuit of self-interest at the expense of owners.

  2. While Vidler is an overall illiquid asset, it is definitely sellable in parts or as a whole. And it has been for the last few years. Where there’s a will there’s a way. Most importantly, there is no solid argument to be waiting for higher values in the future. On the other hand, as “Complacency” commented, there’s substantial operating burn by waiting (which I agree is insane btw). And, yes, this time and market risk issue is undeniably huge. If Vidler is not sold in this cycle PICO could easily be wearing it through the next cycle for 5-10 years (think PICO 2.0). So the question is: is there a wholehearted effort underway to sell it? If not, I see this as a bad name to be in at these prices. We recently exited. Shower time.

    • We agree wholeheartedly with you, Lisa. As we have written many times, the PICO portfolio is very cyclicly sensitive and needs to be monetized with some expediency. We are grateful that UCP is poised to be transacted. This monetization should give PICO owners a small sigh of relief.

  3. Great comments by Lisa and Complacency….The time to sell assets is long overdue, and the offensive amount of money being spent in overhead is dumbfounding! Everyday it costs the shareholders.
    The Board got what they want with the votes, so if something does not happen soon it would be an incredible slap on the face to all. The all out support for The Directors is a bit confusing as they have truly given very little to nothing back and have not released any information on future buybacks , all the while making sure their salaries and bonuses are in place. The small buyback that happened borders on insulting. ….If the board is truly that responsible they should release a more detailed plan. So much of the information we get is through Pico Reform who we greatly THANK! But the information should be from Pico Holdings!

    • Thanks for your comments, mmm. We understand shareholder frustration with the lack of capital return and overhead expenses.

      We agree that overhead expenses should be cut drastically and fast. We don’t understand why PICO continues with so many employees at a cost of over $9 million annually. We hope they reduce this figure sharply during 2017.

      We support the PICO Board for now, because PICO was blacked out from repurchasing shares during both the Long Term Storage Credit sale process and the UCP sale process, which began in late 2016 and January 2017, respectively. Recall that this Board just came on in December 2016, so they were just getting oriented, plus PICO did not receive any LTSC proceeds until early 2017. As we analyze that timeline, we don’t see an opening in which the Board could have repurchased shares.

      Starting in early April, when the UCP deal was announced, assuming the Board is not in possession of other material non-public information, it appears to us that there is a greenlight for buybacks. We expect the Board to either be repurchasing PICO shares right now, or to be planning a Dutch Tender for the near future.

      We respect every owner’s right to sell. We hope they exit both UCP and PICO at a profit. RPN will keep its seat on the train.

  4. Pico longs look at this investment as an asset mispricing situation. Risks are time (from illiquid nature of assets), management graft, and miscalculation of value of the assets. Management risk has lessened but time and illiquidity remain.

    So back of envelope: UCP sale is worth 5.13 per share. Add another 1.65 for 38 million on hand at March 31, 2017. Thats 6.78 per share. Market is then giving vidler a value of 9.57 cents.

    RPN and others have raised the issue of Vidler being sold in its entirety, maybe to a patient investor (likely private equity) But given that any buyer of the assets will inherit the risks of time and the illiquid nature of the assets they are going to want a discount on the price for that risk. Values of 15 dollars for Vidler have been floated before and would be consistent with the low end of Kelly Cardwell’s offered range of 21 to 27 in barrons a few weeks ago. 21 would value VIdler at 15 and 27 would value Vilder at almost 21 dollars per share.

    But if I am a buyer who is going to inherit the risk of time and illiquidity i don’t think any private equity shop is going to offer anything more than 15 bucks for the Vidler assets. Combined with UCP proceeds and cash on balance sheet that values PICO at 21 dollars total.

    So the question for Pico shareholders is it worth it to stick around for the possible but unlikely sale of all of vidler which would likely cap PICO at 21 bucks anyway?

    AndiIf no sale of Vidler assets in full then we are stuck with at least a two year process of selling of Vidler piecemeal with the risks of macro trend moving against sales as well as continued cash burn. While I could make a very convincing argument for the investment at 10 bucks the calculation might indicate a sell at prices we are at now.


    • That is an excellent analysis jjs. We agree with your thinking, but the numbers are harder to debate. We don’t believe that anyone knows what Fish Springs and the other large water assets will sell for. As you shrewdly observe, these are illiquid and unique assets. They do not lend themselves readily to precise valuation. We believe there is greater upside in PICO shares than downside today, so RPN is not disembarking.

  5. mmm states: “If the board is truly that responsible they should release a more detailed plan.” Exactly. How hard is this: “PICO to adopt a plan of liquidation and has engaged XYZ Investment Bank to pursue a sale of Vidler.” This isn’t complicated stuff PICO.

    jjs, I agree on your price/risk/reward comments. That’s why we sold. The good new for any buyer is that these assets will monetize in due course via open market water sales as demand comes on line via new housing and otherwise. But PICO is no longer the appropriate owner for this due course time line.

  6. Complacency

    Dear RPN, thanks to your sleuth work we are able to garner some insights as to how these secretive folks operate. For example, your reasonably assumptive analysis on dark periods and buybacks is helpful. But it helps illustrate the transparency problem that still persists. Method and timing of capital returns and rationale do not need to be held “close to the vest” by PICO. They should discuss the tax effects of each leading to their decision on how and tell us when! If there are no tax ramifications on special dividends then that’s a no brainer. Give shareholders the money – if shareholders want to buy more PICO shares with the proceeds, let them decide. As far as Vidler, same deal: be transparent. Be transparent. It’s not a national secret! “Here are the broad strokes of our analysis on Vidler. Here are the two to three top courses we focused on. Here are the main considerations and risk factors for each. Here’s the one we are pursuing now. And here is the outcome we hope to expect.” Oh, but they might say, “we don’t want to scare our Vidler employees.” To that I say this: knowing PICO, everyone at Vidler has sweet severance arrangements, and if you care about your employees, then try being transparent with them. The PICO situation has greatly improved but it is far from good on the transparency and corporate governance front. RPN, I love what you have done here, but I think your relative endorsement of the PICO status quo is hopeful at best. Hope is not a strategy. And this posture allows for complacency to take root.

    • Thanks for your insights, Complacency. We agree that greater transparency would help the PICO situation. We agree that the PICO Board could outline its monetization and return of capital plans more clearly. We also agree with your previous posts, where you outline a streamlined corporate structure and lower expenses – that’s the stuff of our PICO dreams!

      We feel the configuration of the Board, i.e. two large shareowners and at least one other Director clearly dedicated to shareholder value, provides investors with some assurance. We also feel this Board has earned our faith by their track record so far. Dolt Directors have been removed, four assets have been sold, major changes to corporate governance have been implemented.

      We respect all investors’ right to sell and we hope they exit at a profit. Thus far, we have been optimistic on the PICO situation and we have been well-rewarded. We will continue to lean in that direction.

  7. RPN, can you speculate as to why PICO is not disclosing details on returning funds to shareholders or Vidler Monetization(s)? I too find this behavior unnecessary, and odd in the face of the history here, and thus concerning in regards to a timely liquidation and cease of the gravy train. Why not full transparency? No harm comes from it that I can see. Thank you in advance for your thoughts.

    • Thanks for your question, PHhlder. From the Board’s perspective, there is a $50M repurchase authorization. They have made public their intention to return capital to owners. In Q1, they began buying back shares. This indicates to RPN that they are returning capital to owners.

      The louder the announcement, the more the stock price will likely increase, thereby decreasing a buyback’s efficacy.

      Finally, there are many regulations surrounding buybacks. If the Board announces it will buyback $10M in shares in Q2, and then there is an offer for Fish Springs, which drags on for months, what is the Board to do? It is blacked out from buying shares while in possession of material, non-public information.

      There are many other considerations. This issue has gained some momentum among our readers. We will publish a post on this shortly.

      Thanks again PHhldr.

      • RPN, thank you for the response. It clarifies the issue of capital returns to shareholders via buybacks. Could all of those roadblocks, blackouts and complexities inherent with the buyback route be averted by simply making special cash dividends? Put another way, why not just make special cash dividends instead of buybacks?

        Are there any tax issues with going the special dividend route? What if those distributions are made pursuant to a formal plan of liquidation?

        And, if PICO is going to be active in pursuing monetizations as they imply they are, won’t they continue to have the same buyback blackout issues? Personally, I think buybacks at $16-$17 are a bit aggressive – I’d prefer to see a return of cash, thank you.

        Lastly, what happens after UCP closes (and those related funds are returned to PICO shareholders) and, let’s say Vidler is sold outright to a PE firm for cash? How would the end of PICO mechanically work? How would it cease to exist assuming those Vidler proceeds were returned to shareholders? I don’t think we’ve heard word one from anyone on this end game which is being promised to shareholders.

        Thank you for your astute and thoughtful and communicative dedication to this PICO story.

      • The fact of potential for future blackout raises the importance of instituting a 10b5-1 buyback plan when the window is open (right now?). That way, once there become negotiations for major water sale, the buyback can continue unabated.

        • Thanks for the excellent addition to this discussion, Andy. We are hopeful that the Board, at the first possible juncture, instituted a 10b5-1 plan. Given the recent PICO share price, we view this as probable.

  8. thanks RPN. Looking forward to your post on these issues. But can’t thecompany set up an automatic buyback program setting a range in price to buy and amount similar to insiders who set up automatic sell plans that allow them to sell even if they subsequently come into material non public info?

    • Good point, jjs. But they can only implement a 10b-5 plan when they are not in possession of material, non-public information. This Board completed the Palace Coup in December 2016. The first tranche of funds from the LTSC was received in January 2017. About the same time, UCP started receiving bids. This timeline prevented the Board from either buying in shares in one-off transactions or initiating a 10b-5 plan.

      If there are more asset sales in the works, the Board may not be able to buy shares right now – although given the decline in the price, we hope they are. Also, it is possible that the Board has already set up a 10b-5 plan.

      If share repurchases are taking place, we are glad the Board is keeping it quiet. An announcement would likely raise the stock price and decrease the buyback’s efficacy. As committed owners, we like declines in the PICO stock price.

  9. Complacency

    Can tax distributions be made in a tax efficient manner? If so, then that’s the easy answer. We don’t need this board to speculate with our money that the stock is cheap – to try and tip toe through dark periods – to keep disclosure light so as not to spook the stock higher and hurt buyback prices. Just sell shit and return the cash already! We don’t need this cloak and dagger buyback service. And keep in mind, this board is under no obligation to return funds to shareholders. All it takes is a board meeting to convert PICO from a liquidation play to an acquisition vehicle. Why risk being complacent when you don’t need to be? Why isn’t PICO being fully transparent about its return method thinking and Vidler plans? Why not really try to take the transparency high road? What harm would it cause? None I argue. What benefit comes from keeping shareholders in the dark? Shareholders do not benefit. Does management or the board? The longer this saga plays out, the more money gets transferred from the shareholder estate into the pockets of the individual members of the management team and board members. There objectively speaking remains a very strong monetary incentive for insiders to keep this gravy train rolling. Silence and lack of clarity is a very effective tool in this manner.

    Suck, suck, suck, suck, oops sorry, here’s a dividend, suck, suck ,suck, ok, here’s a little Vidler piecemeal sale, suck, suck, suck, oh, look, see, we just bought a few shares back with out tiny window, suck, suck, suck, suck, ok, you’ve got a point, we’ll cut compensation 10%, but we will refortify the golden parachutes, suck, suck, 2018, 2019, due to unfavorable market conditions no one is buying water from us and no one is buying water companies, suck, suck, 2020, 2021, as we have been sharing about the significant upgrades in water desalinization technologies…, suck, suck, 2022, we announce the retirement of Webb, and thank him for his service, pursuant to his employment agreement, suck, suck, suck….$4/shr, $3/shr, we bought some more stock back! yay!, suck, suck…

    Just sell the shit and return the money. Easy.

  10. Re Complacency’s comments. Fabulous! I couldn’t have said it better myself, well … may-be minus a few sucks. Thanks as well to mmm, jjs and Lisa – it’s important to keep them on their toes. Shout out also to Pico Reform for supplying this forum and for sharing little bits and piece that some of us more average share holders would never know. I only wish we knew for sure whether they [the board] were reading this. Sigh.

    • Thanks for your comments, Jac. The PICO Board reads RPN. Pretty much everyone involved in the PICO/UCP industrial complex reads RPN. We have anecdotal confirmation as well as analytics.

  11. I echo the recent comments about the need for a clearly defined plan from the Board regarding return of capital and sale of water assets. If the company is in liquidation mode then there is a clear path to capital return given the cash on hand and the proceeds coming from the UCP transaction. Why the board has not articulated what will happen when that money comes in the door is beyond confusing and opens up the door for concerns that have been raised on this thread as to whether Board members are absolutely aligned with shareholders. While this Board has done a lot I am not sure they truly appreciate the frustration of longtime shareholders had with prior Board management.

    It is pretty simple PICO board: When the UCP cash comes in the door tell us what exactly the options are and how and when the money will be returned. This communication should happen now and not six months from now. This is your obligation, meet it.

  12. I echo jjs’s echoes: “I echo the recent comments about the need for a clearly defined plan from the Board regarding return of capital and sale of water assets. If the company is in liquidation mode then there is a clear path to capital return given the cash on hand and the proceeds coming from the UCP transaction. Why the board has not articulated what will happen when that money comes in the door is beyond confusing and opens up the door for concerns that have been raised on this thread as to whether Board members are absolutely aligned with shareholders. While this Board has done a lot…”

    “While this board has done a lot” that “a lot” has been governance and compensation clean-up. There has been relatively minimal work in the liquidation arena and little work is actually required of the board to effect an efficient liquidation and dissolution of PICO. Liquidation of PICO is a fairly binary and simple undertaking greatly processed by outsourced experts and lawyers.

    I also echo that buybacks are both an inefficient means of returning capital and overly speculative and aggressive, as these shares are likely worth less in a recessionary environment. Logistically the shares are not very liquid or easy to buy in size, and we can only hope that PICO has reason to be in a permanent dark period as it negotiates sales. Most importantly, at the end of the day, the cash is coming back to shareholders, so spare us the buyback noise, gamesmanship, and risk. We don’t need it. Just get us out cash ASAP. I think it’s fair to guess that many long-term PICO holders don’t want PICO allocating their money for them anymore.

    Look, shareholders have been promised monetizations and return of capital plan and simple. Buybacks or no buybacks, when all monetizations are complete, there should be a final transfer of remaining cash to shareholders. Why won’t PICO speak openly and clearly about this seemingly obvious, paramount and foundational outcome? THIS IS AN ELEPHANT IN THE ROOM. WHY IS THAT? WHY ON EARTH AFTER ALL THAT HAS OCCURRED HERE IS THERE STILL A FUCKING ELEPHANT IN THIS ROOM?


    PICO is a simple IRR situation. The quicker PICO sells assets and returns proceeds the higher the IRR will be. That’s all PICO’s board should be focused on – getting the highest IRR possible for shareholders. If PICO’s assets were held in a PE fund, that’s how they’d be discussed at the top level. I find it completely out of line that Webb and the Board somehow think it’s alright to keep this ridiculously simple process a state secret especially in light of the despicable, disgusting and massive-scale shareholder abuse that defines PICO’s pathetic history and legacy.


    • Thanks for your detailed and penetrating insights, Sam. We will publish a post shortly that will discuss your concerns. We don’t know that it will resolve your concerns, but it will discuss them. 🙂