UCP Files Merger Proposal. Tola Shareholder Suit Settled.

On July 3, 2017, UCP filed its DEFM14A, which is a definitive merger proposal. There isn’t a whole lot that is new. But we provide some highlights.

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.

8 responses to “UCP Files Merger Proposal. Tola Shareholder Suit Settled.

  1. Hi RPN Great job! Wondering….100,000 Long term Storage Units were sold…6 million from sale final proceeds of Canola Seed Crushing Operation? and UCP will hopefully close merger during 3rd quarter../.buybacks are going strong I would think?(we should some good results 4th quarter earnings?
    Just wanted a clearer picture if possible on those again…and Class A Shareholder? definition to make sure I am clear on that(reguarding UCP)…

    Again wonderful job and thanks for all your work!!! JP

    • Thanks for your input, JP. PICO had a put a portion of the Canola proceeds into escrow to cover contingent liabilities. When those liabilities did not materialize, the funds were released to PICO. This benefited shareholders.

      The UCP acquisition appears to be on track. We have voted our shares in favor of the deal, and we imagine the count is darn near unanimous. The publicly traded securities of UCP are Class A shares. PICO holds Series A Units and 100 Class B shares, the former of which can be converted one for one into Class A shares.

  2. “So many open questions and so many possibilities”

    Let’s list them together. Let’s fast-forward and assume UCP is already closed, monetized with monies returned to PICO shareholders. Only Vidler remains.

    1. PICO is sold outright
    2. Vidler is sold outright in an asset sale
    3. Vidler is sold in pieces over time

    Those are the monetization possibilities. Here are the return the money to shareholders possibilities:

    1. Buybacks but only to an extent (PICO can’t buy em all back)
    2. Special cash dividend
    3. Outright sale of PICO
    4. Liquidation

    I do not see “so many possibilities or so many unanswered questions” here at all. I see no one (not a one) asking PICO to make any promises. So no need for “an inflatable crystal ball.” I see repeated reasonable requests for general discussion from PICO on basic monetization and capital return options, considerations and strategy.

    This board does not need to “declare perpetual allegiance” but it should be willing to be clear on its basic business plan. And as its essentially a liquidation, that would mostly include how it plans to liquidate. Lastly, it should have zero issue in speaking transparently about it. It’s not some vast quagmire of possibilities (not even close!). It’s a very very very simple explanation.

    All that said I think you are correct in that the PICO shareholder base is quickly being refreshed. And either way, the chance of any shareholder activism at this point is zero. So these guys are free to do whatever they want, and therefore they are free to tell PICO shareholders nothing.

    • Thanks for your insights, Rudy. It appears you have covered the waterfront. Your analysis highlights the point we have been making: so many possibilities. Using your numbers, the end game of PICO could be #1 combined with #4, or #3 combined with #2… the list goes on and on. We appreciate your desire for greater clarity. We don’t share it. But perhaps the Board will take your words to heart.

  3. Have to say I agree with Rudy here. No one is looking for promises or predictions, but a general description and some reasonable specifics of what the stated path of monetization/return of capital might look like including related tax treatment is certainly appropriate here. To imply PICO is an endless matrix of questions and possibilities that are too complex to discuss makes no sense to me either.

    I would like management to confirm it’s stated plan to liquidate. To clarify that it’s silence of basic matters of the liquidation process should not be interpreted as a potential shift towards acquiring assets. The wording “to declare perpetual allegiance” seems to be a way to ridicule the or deem unreasonable shareholders’ desire to know that this paramount aspect of the PICO thesis is in tact. Management’s silence on the matter is problematic, them reiterating it quarterly definitely would not be, right?

    • Thanks for commenting, BRS. As we have stated, we don’t share the need for greater clarity and we don’t expect the Board to limit its options by affirming a liquidation. There may come a time and a shareholder base that encourages this Board to use the NOLs pursuant to an acquisition strategy. That time is not now and this is not the shareholder base. But it would be a violation of common sense and good governance for the Board to declare unequivocally a single course of action.

  4. Importantly, PICO has said “current” plans are monetization and spits returns, and that was quite a while ago. Their silence and reluctance on the topic is indeed troubling. Remember, human nature is at play here. These guys are never going to “hit one out of the park” with a successful liquidation. But creating a mini Berkshire Hathaway is both fun and where hero status can be attained with no cost of failure. In fact, win or loose, the longer these guys are in the game, the more they personally gain as individuals through their lucrative compensation packages.

    • Thanks for your thoughts, Jp. We agree with your conclusions. For today, we are comfortable with the PICO Board’s strategy and composition. But your forebodings are wise.