RPN Explains Support For PICO Board – Part 3. PICO Relocates To Delaware. UCP Shareowner Complaint Summary.

Today, in Part 3, we revisit our support for the PICO Holdings‘ Board.

RPN Explains Support For PICO Board – Part 3

Shareholders have voiced three complaints in relation to PICO employment. First, there is no need for a highly-paid CEO and CFO; PICO is in liquidation and any administrative overseer, earning far less, will do. Second, at almost $1 million collectively per year, executive compensation is too high. Third, the burn rate of $9.1 million going forward is exorbitant and amounts to corporate waste due to overstaffing.

We’ll tackle the first two complaints today and leave the third for our next post.


According to their Employment Agreements, Max Webb, PICO’s CEO, earns $496,000 in base salary and John “JP” Perri, CFO, earns $440,000. We agree that $936,000 is a lot to pay two executives of a microcap firm in liquidation.

If their Employment Agreements had been negotiated in an arm’s length, independent fashion, it is unlikely either man would have commanded such compensation. But these Employment Agreements were not produced in a vacuum and the PICO Board did the best it could, given the circumstances and constraints. A little history is in order. This history answers both the question about why the need for a CEO and CFO and the compensation that many PICO shareowners claim is excessive.

The PICO situation started to get messy about 2.5 years ago. The corrupt and incompetent John “The Juicer” Hart was PICO’s dapper don, committing various crimes against shareholders. His underling perpetrators Kristina “Maleficent” Leslie and Carlos “NACD-Decorated Horse Thief” Campbell did his corrupt bidding. In March 2016, the corrupt PICO Compensation Committee, of which the above-mentioned Directors were members, plus Michael “Desperado” Machado and Robert Deuster, promulgated new Employment Agreements for Juicer, plus Messrs. Webb and Perri.

Mr. Webb’s 2016 Employment Agreement, which was 5 years in duration, provided assurance of a large bag of goodies in the event of an “involuntary termination,” in other words, termination without cause. In such an event, Mr. Webb stood to receive 2 years base salary ($992,000), unused vacation time, any unpaid bonus, accelerated vesting of equity awards and one year of healthcare including all dependents.

Mr. Perri’s 2016 Employment Agreement, was similar. If terminated without cause, Mr. Perri would have received 2 years base salary ($880,000), unused vacation time, any unpaid bonus, accelerated vesting of equity awards and one year of healthcare including all dependents.

Now fast forward to late 2016: the Board is comprised of Directors Daniel Silvers, Andrew Cates, Eric Speron, Mr. Hart, Mr. Machado, Howard Brownstein and Raymond Marino (Chairman).

The only decisive action during Delaymond’s tenure occurred when the PICO Board fired Juicer on October 12, 2016. This decision was part pleasure/part pain because while the sinner was excommunicated from the PICO sacred land, it cost about $11 million.

When the Board 86-ed Juicer, it had to find a replacement for CEO. Someone had to handle the liquidation, the financial, the daily decisions and the administrative. Who would it be?

It couldn’t be any of the Directors. None of them are water rights experts, none are homebuilder executives, none are professional liquidators. And none of them probably wanted the job.

The Board could hire someone from the outside, as some RPN readers have suggested, an administrator to oversee the liquidation and handle daily executive affairs. But that would require considerable time, effort and money. The Board would have to retain a search firm, interview candidates, choose one, negotiate compensation and employment terms, pay a signing bonus, get this person up to speed on the Vidler portfolio and UCP, and monitor them closely for at least a year. The whole process could take months and cost many thousands of dollars and dozens of man hours.

Or the Board could simply promote Messrs. Webb and Perri, whose employment terms were already somewhat quantifiable, who already knew the portfolio backwards and forwards, who knew all the people at Vidler and UCP, who accepted the liquidation mandate, who were already involved in any pending transactions, and who were known quantities to the PICO Directors.

Yeah, Messrs. Webb and Perri command higher compensation than an independent administrator would. But when you add up all the costs of finding this theoretical administrator, the time, the uncertainty, the slowdown to the asset sale process, would PICO shareholders have saved anything?

We don’t think so.

In addition, Messrs. Webb and Perri weren’t part of the problem. Yes, we all harbor suspicions as both men for decades turned a blind eye to Juicer’s incompetence and corruption. But to the best of our knowledge, they were not active participants in his corruption and they were not sodomizing corporate governance or inhibiting asset monetizations the way Juicer was.

So that is why PICO retains a well-compensated CEO and CFO to this day, despite the fact that perhaps a lesser-abled individual would do the same job for less base salary. When the PICO Board fired Juicer, it had to weigh the costs and benefits of seeking an outside candidate that would have been cheaper from a base salary perspective, or pay a little more in base and save thousands of dollars in professional fees, dozens of hours of time and the risk of onboarding a new executive and upsetting the monetization process. We believe the choice was easy and the Board selected well.

High Executive Compensation:

The high compensation of Messrs. Webb and Perri can be traced back to the same process. Recall that in early December 2016, Delaymond and Hapless Howie were appropriately thrown from the PICO Board. How did that happen? We have an idea.

When our shareholder oriented Directors, Messrs. Silvers, Cates and Speron, contemplated the Palace Coup, they were short one vote: there were 7 Directors on the PICO Board, but they were only three. To complete the Palace Coup, they needed 4 votes. What were these admirable boardroom rebels to do? (Recall that when Juicer was fired, Mr. Webb took his place on the PICO Board).

We don’t know this for a fact, but our bet is that Messrs. Silvers, Cates and Speron went to Mr. Webb and said, “This is our plan. We depose Marino now, and get rid of Marino, Brownstein and Machado pre-2017 Annual Meeting. After that, we cut the Board to 5. We need your vote to make the majority of 4. Are you in?” Mr. Webb predictably asked, “What’s in it for me?”

Ready to trade some horses, they likely responded: “You get to be Chairman until the Annual Meeting. At the Annual Meeting, we take an advisory vote to improve the optics; its yours for good if shareholders pass it. You get to run the earnings calls, the Annual Meeting, set the agenda for the Board Meetings.

We put on the kid gloves for your Employment Agreement. Your base will stay the same. Your bonus will be achievable and lucrative, but with some lipstick so shareholders can live with it. We wrap up the negotiations quick, so you can get back to running PICO and sleep at night.

All we need is your vote to throw Marino and Brownstein.”

It was an offer Mr. Webb could not refuse.

This was good strategy by Messrs. Silvers, Cates and Speron. When it came to terms of employment, Messrs. Webb and Perri had PICO by the juevos already. Recall that, thanks to the corrupt Comp Committee of 2016, both men had iron-clad Employment Agreements. They were slated to receive half a million dollars per year each already.

In other words, Messrs. Webb’s and Perri’s compensation was legally obligated to be high already. Messrs. Silvers, Cates and Speron simply affirmed that fact, made the revision to compensation more friendly, traded Messrs. Webb and Perri a few horses, and in the process, took control of the Board – the latter of which has been to the enormous, humungous, overwhelming benefit to shareowners.


Given the history and the circumstances, the PICO Board has done right by shareholders in its retention of Messrs. Webb and Perri at their current compensation levels. The alternatives would have left us economically worse off and would have slowed down the monetization process.

So far, the tenures of Messrs. Webb and Perri have been productive for shareowners. Four assets have been sold, the capital return process has begun, corporate governance has been improved, the share price is way up. As we have been saying for months, we continue to be optimistic.

PICO Relocates To Delaware

On May 31, 2017, PICO Holdings formally changed its state of incorporation from California to Delaware. An 8-K filing with the SEC indicates that not much changes as a result of this event. For a summary of the details, refer to PICO’s 2017 Proxy Statement.

In the days following the announcement, PICO stock has risen 8%, from $16.40 to $17.50 – although we don’t see any justification for correlation.

The last time PICO stock traded at $18 per share was over 2 years ago, in May 2015. And since RPN is on the theme of cheeleading the PICO Board, we note that since the Palace Coup in early December 2016, PICO stock has risen 17%, from roughly $15 to $17.50. During this time, the S&P 500 has risen 10%.

UCP Shareowner Files Class Action Against UCP Directors

UCP Shareowner Joseph Tola has filed a Class Action Complaint against the UCP Board of Directors, in the US District Court for the Northern District of California. Represented by Rosemary M. Rivas, Esq., of Levi & Korsinsky, LLP, plaintiff Mr. Tola seeks to stop the acquisition of UCP by Century Communities.

According to Mrs. Rivas, “To the detriment of the Company’s stockholders, the terms of the Merger Agreement substantially favor Century and are calculated to unreasonably dissuade potential suitors from making competing offers.”

Mrs. Rivas cites several justifications for her client’s opposition. First, the deal’s “no solicitation” provision prevents UCP from outreach to other parties potentially interested in a deal. Second, both the UCP and PICO Boards are restricted in their ability to recommend against the acquisition. Third, Century is granted a “matching right” to offer equal gold galleons in the event of a higher offer. Fourth, the termination fee disabuses a fair auction. Fifth, PICO has already irrevocably blessed the marriage with its vote lockup agreement.

Along the lines of what RPN likes to hear, Mrs. Rivas asserts that the dowry of $11.37 is too low. She reminds readers that Citigroup Global Markets‘ own deal analysis indicates UCP is worth as much as $14.40 per share.

As if she billed by the hour, Mrs. Rivas argues that the Registration Statement omitted several salient financial metrics that if included, would reveal UCP’s more than skin deep inner beauty.

Finally, Mrs. Rivas notes that, “Additionally, while the Registration Statement provides that, on April 7, 2017, ‘Party F’ submitted a proposal to acquire UCP in an all-cash transaction for $14.29 to $16.67 per share of UCP Class A common stock—materially higher than the merger consideration—the Registration Statement fails to disclose the nature and timing of Citi’s subsequent discussion with Party F regarding the proposal and whether there were any subsequent communications between Party F and UCP or its representatives. The omission of this material information renders the Registration Statement false and misleading…”

In case you were wondering, Mr. Tola is the proud owner of 100 UCP shares, purchased on November 11, 2013, for $13.75 per share.

See a copy of the Complaint here..

20 responses to “RPN Explains Support For PICO Board – Part 3. PICO Relocates To Delaware. UCP Shareowner Complaint Summary.

  1. RPN, I’m glad you have such confidence in this board. How confident do you feel that they will not switch gears at some point and start acquiring assets vs returning capital? Thanks.

    • Thanks for your question Sam. For now, we feel there are checks and balances in place to keep this Board aligned with the mandate of asset sales and return of capital. There are two large shareholders on a Board of 5. Shareholders can act by written consent, call special meetings and exercise cumulative voting. Last, PICO has a shareholder base that is extremely vigilant, which includes a shareholder blog. Many would scream at the top of their lungs if the PICO Board deviated from the mandate.

      • Thanks for the reply RPN. I feel differently.

        PICO attracted a vigilant shareholder base below $10/shr when it was an activist’s wet dream and rotting from massive management self dealing. A cleaned up PICO trading north of $15/shr it’s far less ripe, and too many would vote with their feet. Counting on an activist with real intentions to use the protections you mention is a weak bet in my opinion – using them costs too much time, money and aggravation – not worth it. So I don’t feel comfortable at all that we’re covered by checks and balances.

        I just wish management would take a more transparent approach on these fundamental issues. What’s the big secret? What harm would come of management, the board or shareholders if they spoke openly about the potential methods, thought process and considerations involved in ultimately returning our money once monetizations are complete? We shouldn’t have to trust the board. They should gladly be providing such basic disclosure negating the need to trust. I remain extremely concerned that this will flip into acquisition. Keep in mind, while we have “shareholders” on the board, they are not actually shareholders. They are handsomely paid PICO directors and paid representatives of the institutions that own their PICO shares on behalf of LP investors.

        RPN, I hope you’re right and PICO has just gone dark to try and sink the stock price to buy back mass amounts of shares on the cheap. But I don’t want to hope. I’d just assume they tell the truth. And I don’t necessarily think this stock is cheap above $12-$13. I think it could possibly be worth $20+ with better disclosure. But we, unlike our “shareholder” directors, are left in the dark while they hope our stock lingers.

        • You raise a good point sam, in that an aberrant PICO Board might not attract the same attention, given that the valuation gap is not as obvious. Given the two shareholders on the Board and the existing shareholder base, we believe action would be taken if the Board violated its stated mandate. Intelligent people are free to disagree on this last point, and no one can claim to be “right” until that scenario comes to pass, but it does not cause us worry and members of our panel also are unconcerned.

  2. Complacency

    So here’s what I’m hearing: the PICO board employs a light or no-disclosure policy as it relates to capital return method and related tax strategy discussion, so it can hopefully buy back 1/3 or more of the shares cheaper (as disclosing such detail could inflate the stock price). Nice. Consciously hoping to disenfranchise over a 1/3 of the current PICO shareholder base for monetary gain. That’s one way to do it if you don’t mind seeking to harm 100s of innocent people for personal profit. I’m more of a fan of transparency, full disclosure and treating other people more respectfully. I’m truly shocked at this and that no disclosure on the most paramount and fundamental aspect of this name is ok. Yuck. Time to take another PICO shower. Is anyone else loosing faith in mankind?

    • Thanks for your comments Complacency. Your perspective has merit; the scenario as you outline will reward the faithful. We remain optimistic and will bet on the PICO horse for the foreseeable future.

      • RPN, the faithful will only be rewarded if NAV ends up significantly higher than the buybacks. And from the sense of things, shareholders could wait an awfully long time to receive that end game NAV distribution (*if they ever receive distributions). At this point, I think a “bet on the PICO horse” is just that, a bet. A change in the cycle could easily have buybacks at these prices causing major damage to shareholders (again). Rather then bet my money on risky buybacks, I’d prefer they return my money to me to invest where I want to – that or explain to me why they cannot. The silence on all this is unnecessary and thus very suspect to me. Thanks for the discussion and venue for shareholders to air out opposing views.

  3. Dear complacency:

    The board announced that it would likely buyback stock a long time ago. It’s your choice to sell or not. No one is being disenfranchised. If you think stock is fairly valued or overvalued then sell. If not hold. It’s pretty simple. In any event your comment makes little to no sense.

    • Thanks for your insight, Jjs. We agree that each shareholder has a choice. We believe the PICO Board has been very clear about its plans. We believe that Complacency’s comment makes sense, from a very, very strict interpretation of transparency. We don’t adhere to such a strict transparency policy from our Boards. Once they have proven capable and honest, we give them all the leeway they need in the realm of transparency. We believe our optimism in this Board will be rewarded.

      • RPN, as you have pointed out before, two intelligent people can see things differently. Having been a professional special situations value investor for almost 25 years, I can assure you the transparency I seek isn’t a “very, very strict interpretation” or at all unwarranted in this case. In fact, I respectfully question your completely hands off stance on the matter: to simply trust the board and full-thoatedly brush off any need for transparency on these issues. This name is essentially (and still allegedly at this point) a liquidation. PICO will sell the assets and return the money. It is ABSOLUTELY warranted and appropriate for PICO to discuss openly how that money might ultimately be returned. There are a limited number avenues all with different considerations (taxes being a big one). There is no good reason why PICO shouldn’t have, at a minimum, a generic discussion of the matter.

  4. Complacency

    Dear Jjs,

    With all due respect, my comment, while you may not agree with it, makes perfect sense. It is in reference to the “Part 2” post in which RPN applauded PICO’s silence as it allows for lower priced buybacks. Allow me to explain and provide the context.

    A 5/30/17 comment on the “RPN Explains Support for PICO Board – Part 2” said:

    “PICO’s sole mandate is monetization of assets and return of capital. You don’t think PICO should transparently discuss (or discuss at all) its basic thinking on return method: buybacks, special dividends, formal liquidation and tax strategy? To explain how it will ultimately return $100s of millions? It’s a very foundational, straightforward and reasonable question, yet perplexingly remains unaddressed by PICO.”

    On 6/1/17 RPN replied to that comment: “We believe PICO is buying back shares and will continue to buyback shares. To get the best price possible for those shares, we support the Board’s reticence on this matter.”

    And in the main body of that “Part 2” post, RPN stated: “We are thankful the PICO Board has played possum on return of capital. Any announcement would likely be counterproductive as it would raise the stock price, decreasing economic efficacy, dollar-for-dollar.”

    PICO playing possum and withholding critical, basic information (full return of capital methods and tax treatment) does not allow owners to properly determine fair value of their shares. RPN contends this withholding is an effort to enhance buy-back performance. RPN asserts that PICO intends to use buy backs as a primary return mechanism. RPN believes more than 1/3 of the shares can be repurchased over time. The perspective of my comment, albeit provocative in nature, quite sensibly views this operation in this context as a conspiracy to disenfranchise 1/3 of the shareholder base. “Let’s hope the 1/3 sells cheap, so us 2/3 can reap the reward.” (btw, the strategy makes sense, I just personally see it as unethical)

    Why won’t PICO simply answer the how, why and taxation involved with monetization and return beyond buy backs? RPN has already discussed the cheaper buy back scheme. Maybe PICO does not intend to return the capital? Maybe it wants to go out and make acquisitions? The point is we don’t know, and we deserve to. Transparency and full disclosure on these paramount topics are not going to cause any harm here. Non-transparency and non-disclosure are what’s harmful here, and unnecessary.

    With the further context in mind, I’d be interested to hear if your interpretation of my comment now. Thanks for your consideration in replying to this note.

    • Thanks for your detailed and articulate clarification, Complacency. As we wrote earlier, your perspective has merit and we respect it. Personally, we do not demand such strict transparency from our investee Boards, once we are confident they are competent and honest (a qualification which may be the sticking point with which you disagree when it comes to this Board).

      Personally, we are pleased to see the PICO stock price come down. We hope it stays down. We believe the PICO Board is buying in shares and a cheaper stock means greater reduction in fractional interests outstanding.

      We believe this Board has been clear enough. We remain optimistic in PICO’s future.

      • Again, this is not “such strict transparency.” This is the most basic level of transparency. And again, what’s the big secret? Why withhold? Why not just disclose?

        • Thanks for your comments, Complacency. We respect your meritorious opinion. We believe differently and we are comfortable giving this Board the leeway and confidence we feel it deserves. The end game might be a long way off and there are lots of moving parts. Our guess is that this Board has no idea what the final pitch of the last inning will look like. As a result, clarity takes on a highly speculative quality.

          Ideally, the Board will shrink the PICO portfolio piece by piece, returning capital the entire time. Ideally, the remaining portfolio will be bought in a corporate acquisition for cash, to close this story out. All remaining shareowners will be paid cash for their PICO shares, in such a scenario. With every asset sale, such a final monetization becomes increasingly likely. We believe this is the outcome the Board seeks. At the expense of repetition, we remain content to confide in this Board to do right by owners and at this point, we take a hands off approach.

  5. Thanks RPN…and thanks to the others for the posts. I am still somewhat confused, by the stock price down is a good thing for the shareholders, and when the stock price goes up when does that become a good thing?. I thought you had mentioned the stock had up gone since the new Directors and that was a good thing… Good ,or bad, buybacks, return to the shareholders…the stock price going in anyway would seem to benefit the shareholders , the sooner the better…would it not? Thanks Again

    • Thanks for your comments, mmm. We are half-full sort of guys. We are happy when the PICO share price increases as it raises the value of our investment. Given that we believe PICO is buying in shares, we are also pleased when the share price goes down. If we had our way, we would prefer a lower share price so the return of capital increases our fractional ownership as much as possible. We aren’t going anywhere for a while, so we plan to enjoy the value maximizing measures.

  6. Thanks RPN, so this could take a while?.For the longer shareholders (some as long as 8 years) who want to get out with a loss as small as possible( the idea of a profit left their minds long ago), a bit more information from The Directors would help…ease the pain as some shareholders continue to wait. Knowing when the date of next quarter release would help, as most have already released this information. With the release, there should be (finally) a positive quarter I would think.? Releasing (in detail) where the finances stand would greatly help shareholders ..after years of abuse and disrespect Information is so important on a continuing basis, which would give shareholders a sense of what is always going on.Thanks Again for continued support RPN..

    • Thanks for your input, mmm. We hope you make up as much ground as possible on your PICO investment. We looked at it for many years also; it was tempting for a long time. We expect PICO to release Q2 earnings the first week in August. So far, no further asset sales have taken place, so we expect operations to show little activity. We hope there will be substantial shares bought in.

      We believe that the current Board understands the abuse suffered by PICO owners. We believe the Board is sympathetic to the fact that PICO has been a posterchild for poor corporate governance and value destruction. But this Board cannot steward the company based on the injuries caused by the previous Board. They must steward the firm the best way they see fit for today. We appreciate your sentiments related to the PICO investment, we feel them also. But in our opinion, this Board cannot and should not address the wrongs of the past. They must create value going forward.

  7. Hi RPN..I agree the board should not be concerned about the past, and should look ahead, creating value for all should be the goal. There have been assests sold and a clearer picture of when and how much will go the shareholders should be clearer…a simple date announced for the next quarter would not seem unreasonable or dangerous to anyone. I know assests have been talked about , but seem to change weekly where they will be directed.and when.There always seems to be information, on salaries, pensions, stock options, not so much on other points, how is that office doing and its overhead? I heard very expensive…
    Returning Capital to shareholders could be defined better, and the end result would be cash payout…intresting, but confusing, wanting the stock price to stay low to buy stocks in one breath, , but maybe not??? Low is better, yes, no, maybe, ABC simple stuff
    …they should try a little harder on the information that is harmful to no one…The Board should look ahead to create value, but not loss sight of the past and be patient with shareholders, as the shareholders have been with the new board and voted for wanted they wanted….The Board looks very promising, but I think they work for the shareholders last I heard, could be wrong about that one…such simple stuff, I think they get paid pretty good….Take a moment…and let us know …There is now talk of THIS COULD TAKE AWHILE!!! What does that mean, I though it was lets get her done….