Wedlock Day – August 4
Recall that UCP Shareowner Joseph Tola filed a Class Action Complaint against the UCP Board of Directors, in the U.S. District Court for the Northern District of California. Mr. Tola is represented by Rosemary M. Rivas, Esq., of Levi & Korsinsky, LLP.
Mr. Tola claimed that the deal’s S-4 Registration Statement provided insufficient information. Mr. Tola also asserted that provisions of the deal prevented another suitor from seeking UCP’s hand in matrimony.
On June 21, UCP filed an Amended Registration Statement, which provided enhanced information and made clear that it was open to other potential grooms before UCP said “I do” to Century.
Mr. Tola was sufficiently satisfied with UCP’s efforts. The parties entered into a Stipulation of Dismissal pursuant to which Mr. Tola’s action will be dismissed “after the Transaction closes, which defendants currently expect to occur on August 4, 2017.”
You can read the Stipulation, on which Judge William Alsup placed his stamp of approval, here.
The implications for PICO are significant. Assuming the legal filing is predictive, in just 11 days, PICO will receive around $117 million in value. Upon closing, PICO will receive roughly $55 million in cash and 2.4 million Century shares. PICO must hold its Century shares for 60 days after the merger. Between Day 61 and Day 210 following the merger, PICO may sell 5% of Century outstanding shares every 50 days. After 210 days have elapsed, PICO may sell its Century shares at will.
A quick glance at the PICO website, specifically the page entitled “Committee Composition,” reveals three interesting facts.
First, PICO CEO Max Webb serves on no Committees. We noticed Mr. Webb’s absence from Committees in the 2017 PICO Proxy Statement, but we assumed it was temporary. We guessed that once the Directors were settled, Mr. Webb would be joining at least one Board Committee. Since almost 3 months have passed since the PICO Annual Meeting, we now believe this situation is permanent.
It is not uncommon for a Chairman to serve on zero committees. A quick perusal of RPN’s investees indicates that about half follow this policy. But historically, the occupant of the PICO Chairmanship has sat on Board Committees. Kristina “Maleficent” Leslie sat on the Audit and Compensation Committees. More recently, Raymond “Delaymond” Marino served on the Corporate Governance and Nominating Committee.
The current Board appears to have changed that practice. Given Mr. Webb’s lengthy tenure during PICO’s period of shareholder abuse, and given the unique dynamics of the PICO situation, we view this omission as appropriate and favorable to shareholders. This opinion is strengthened by the fact that we view Mr. Webb’s Chairmanship as sub-ideal – especially given that Daniel Silvers would better fill that slot.
The flip side to Mr. Webb’s Committee absence is that all Committee members are Independent Directors. We feel this configuration suits PICO and its owners just fine. We commend the Board for its willingness to think differently.
Second, Greg Bylinsky of Bandera Partners has been named to Compensation Committee – a move we hoped the Board would make. We are confident Mr. Bylinsky’s inclusion will benefit owners and from a PR perspective, it looks a lot better. Between Eric Speron and Mr. Bylinsky, two of four votes on the Comp Committee hold an 8.1% PICO ownership interest. We like the sound of that.
We believe the presence of Messrs. Speron and Bylinsky on the Comp Committee will be more than pretty packaging. The Bonus calculations will get tricky as larger water assets are sold and there will be considerable room for interpretation as the definition of “Administrative Expense” is debated.
At March 31, 2017, PICO’s book equity was $332 million; of that sum, almost $27 million is owned by Messrs. Speron and Bylinsky. It is truly their money.
The third interesting fact gleaned from PICO’s Committee Composition page is that all Independent Directors serve on all Committees. The Committee Composition matrix reads like a 4 x 3 keno card: all squares are filled.
PICO shareowners do not pay more for this: the Nonemployee Director Compensation Policy indicates that only the Chairs of Committees are paid extra. In our experience, this configuration is unusual because it means more work for the Directors without more pay. We applaud our PICO Directors for their can-do spirit.
PICO should Q2 release earnings the first week in August. We expect an update on the UCP deal as well as news on return of capital to shareowners. Stay tuned!