PICO Holdings, Inc. (Nasdaq:PICO), based in La Jolla, Calif., is a diversified holding company reporting recurring losses since 2008. PICO owns 57% of UCP, Inc. (NYSE:UCP), 100% of Vidler Water Company, Inc., a securities portfolio and various interests in small businesses. PICO has $664 million in assets and $434 million in shareholder equity. Central Square Management LLC and River Road Asset Management LLC collectively own more than 14% of PICO. Other activists at http://ReformPICONow.com/ have taken to the Internet to advance the shareholder cause.
On June 27, 2016, the activist bloggers posted an open letter to PICO Chairman Raymond Marino. The letter is reprinted in its entirety.
Congratulations on your appointment as Chairman of PICO Holdings. Shareowners are fortunate to have a businessman of your experience and aptitude as steward of our company. We look forward to a holistically profitable partnership.
We know who you are – we have been publishing about you for several months. But since you do not know us, allow us to introduce ourselves. We are ReformPICONow, a group of suffering PICO shareholders who have one objective: to create value for all PICO shareholders.
The purpose of this letter is to discuss PICO’s relationship with its CEO John R. Hart. We believe that Mr. Hart has proven deficient in all qualities desirable in a CEO. For example:
A) Mr. Hart lacks leadership and communication skills: In 2015, at “Investor Day,” Mr. Hart censored the webcast of the General Q&A – a possible Regulation FD violation. As a result, only select invitees were made aware of his answers to important questions.
B) Mr. Hart lacks capital allocation skill: PICO has reported 5 consecutive years of losses, which total $242.2 million or almost $10.50 per share. Central Square estimates that Northstar Hallock cost shareholders $85 million, or $3.70 per share.
C) Mr. Hart is defectively avaricious: The Hart Employment Agreement and Bonus Plan has earned unanimous scorn from PICO shaholders. PICO’s second-largest investor River Road, stated that these contracts were negotiated “IN BAD FAITH . . . ” [Capitalization in original].
D) Mr. Hart is incapable of creating value: Five years ago, PICO’s market capitalization was roughly $700 million. Today, it is barely $200 million, a destruction of almost half a billion dollars or 68% of capitalization. During this time, the S&P 500 returned 63%.
E) Mr. Hart lacks integrity: On June 7, we published PICOGate, revealing that Mr. Hart hid from PICO shareholders the fact that he owned an equity stake in Synthonics at the time PICO made an investment in that entity. Further, Mr. Hart and Director Kenneth Slepicka failed to disclose, for 6 years, their manifest conflict of interest.
F) PICO shareholders seek Mr. Hart’s termination: In 7 months of publishing, RPN has not received a single utterance of support for Mr. Hart, nor a single challenge to our disparagements. We have been contacted by analysts, hedge funds, institutional investors, journalists, retail investors and former PICO and UCP employees — all of whom are PICO owners — seeking the ouster of Mr. Hart.
Given this list, we ask you, our Chairman, to expeditiously terminate Mr. Hart’s employment for cause to produce these significant positive results:
Heal PICO’s dysfunctional relationship with its shareowners. PICO shareowners are like abused children: we have been lied to, manipulated, beaten and stolen from. Resentment and mistrust run at intense levels. Removal of the primary perpetrator of these abuses, Mr. Hart, would engender deep gratitude among shareowners for you.
Enhance the current standing of both PICO and our Chairman. PICO suffers from an atrocious reputation in the investment community — producing a shockingly low stock price. Removal of Mr. Hart will raise PICO’s stature, and your stature in the process.
Correct a glaring mismatch. Our Chairman is an honest, competent businessman who has created value for shareholders. Our CEO is the polar opposite.We are unaware of a single example where the virtuous has raised the base — always the base drags down the virtuous. You would be best served by an honest, competent CEO.
Create value for PICO owners. Mr. Hart proposes to take $20 million in base salary and bonus payments over the next 5 years, or almost $1 per share. The amount of value you create at PICO will be either X or X-Hart (“X minus Hart”). Both you and PICO shareowners will benefit if that number is X.
Improve our Chairman’s legacy. History will judge you by the amount of value created at PICO. By retaining Mr. Hart as CEO, you entrust your legacy to a corrupt and incompetent executive. History argues that this is a poor bet. We ask if it is rational to have one’s legacy decided by a man who has destroyed half a billion dollars in value?
Open doors for our Chairman. Your next business opportunity depends on the amount of value created at PICO. If copious value is created, lots of doors will open. If value creation falls below expectations, doors will close. With Mr. Hart’s $20 million entitlement, suspect incentives and proven ineptitude, you are poised to start the value creation game from a deficit. Your career prospects will improve once Mr. Hart can no longer influence them.
Remove a threat to our Chairman. The PICO situation is gaining prominence. An increasing number of investors recognize the gap between asset value and market price, combined with angry shareowners. If significant value is not created soon, an activist with knuckles will force value creation. While your term runs until 2018, a special meeting to remove multiple Directors remains a possibility. Both you and PICO will benefit from the security and stability that comes with value creation.
On May 25, 2016, RPN advocated the CEO role for our Chairman (see Raymond Marino Clinches RPN Nomination). PICO shareowners would benefit from your increased services to the Company. If this option is not appealing, PICO would benefit by retention of an honest and competent CEO chosen by the Board.
Mr. Hart’s presence at PICO is destructive to shareholder value. Contrarily, his removal will create shareholder value. We are all owners in PICO together. We all seek economic value creation. PICOGate provides the means with which to remove Mr. Hart from PICO immediately and cheaply. We humbly ask you to use the tools at your disposal to create value for all owners of PICO and remove Mr. Hart from our Company.
In service to all PICO owners,