UCP Special Meeting
The UCP Special Meeting to vote on the acquisition by Century Communities will take place on August 1, 2017, in San Jose, California. Given that PICO Holdings has already agreed to vote its 57% UCP stake in favor of the acquisition, the meeting and vote are mere formalities (assuming nothing bizarre happens).
PICO and UCP Class A shareowners stand to receive $5.32 in cash and .2309 Century shares for each UCP equity interest. As of this writing, such consideration was worth $11.12 per share.
Century did not update its timeline. It still expects “the Merger to close by the during the third quarter of 2017.”
Tola Complaint Settled
An Amended Registration Statement filed by Century on June 21, revealed that the Class Action Complaint, filed by UCP shareholder Joseph Tola, has been settled. The case was filed in the US District Court for the Northern District of California. Mr. Tola, represented by Rosemary M. Rivas, Esq., of Levi & Korsinsky, LLP, sought to stop the Merger unless and until Century/UCP provided greater disclosure to the investing public.
Century/UCP have done that. Most importantly, Century/UCP reveal that they heard nothing from “Party F,” the mysterious foreign bidder who was poor on execution but high on price.
Recall that Party F submitted the highest nominal bid, but its potential to close the deal was questionable. The Amended S-4 reveals that UCP’s bankers at Citigroup Capital Markets spoke with Party F and its representatives to flush out a fuller bid. But since those talks, “UCP and its representatives have neither received nor had any further communication with Party F with respect to a potential transaction involving UCP.”
Apparently satisfied, Mr. Tola and Century/UCP entered into a memorandum of understanding pursuant to which Mr. Tola withdrew his claims and Century/UCP provided the enhanced disclosure contained in the Amended Registration Statement.
This legal tussle was so quick and superficial, we aren’t sure if even the lawyers won.
PICO – Acquisition Vehicle
A few RPN readers have voiced both in private and in public, concerns that this Board will eventually turn PICO into an acquisition vehicle, to utilize the Net Operating Losses and continue their Directorships and paychecks. The fear, we assume, is that value will still reside in PICO and by changing mandates halfway through the ballgame, this Board will deprive PICO owners of that final tranche of value.
We disagree with this fear for a few reasons.
First, the end game is likely very far away and we support the Board’s decision to maintain silence on outcomes so uncertain and so far into the future. There are so many question marks, this Board is not promising anything.
Second, the specifics of the end game are unknown. As PICO sells assets, the portfolio gets simpler and simpler, making a final portfolio acquisition by an outside buyer ever more likely. No one knows if this scenario will materialize, if this buyer will be public or private, or if this buyer will pay with cash or stock. The Board is unable to clarify end game financial scenarios because it has no idea. No one does.
Third, it is our hope that the NOL Acquisition Vehicle scenario is rendered moot (or almost moot) by asset sales. We hope that the NOLs will be utilized for the benefit of existing PICO shareowners when assets are sold for prices higher than tax bases.
Fourth, we believe most PICO shareowners will be long gone before any NOL Acquisition Vehicle scenario materializes. If your PICO NAV is $22 and your time horizon is two years, and PICO hits $19 soon, there is a strong argument to exit the position at $19. As PICO stock continues to climb, we believe that the existing shareholder base will dwindle and new shareholders, some of whom might support an NOL Acquisition Vehicle, will take their place.
Fifth, using the NOLs to make acquisitions may make sense at some date in the future. If PICO assets are sold and NOLs remain, they aren’t much good unless and until they can be offset by operating profits.
To conclude, RPN is not worried by this Board’s unwillingness to declare perpetual allegiance to a return of capital mandate. We have zero concern that this Board would go rogue and change the strategy halfway through the campaign. At this point, there are so many open questions and so many possibilities, one would need an infallible crystal ball to make any promises.