Bloggers Comment On PICO’s Proxy Statement

As originally appeared in the Troubled Company Reporter.

Activist bloggers at have expressed satisfaction on PICO Holdings’ Preliminary Proxy Statement released March 10. The bloggers consider themselves a generally hard to please bunch.

The bloggers state that they will vote for all 5 director candidates: Daniel Silvers, Andrew Cates, Eric Speron, Max Webb and Greg Bylinsky. “Thus far, these men have markedly improved PICO in all respects: corporate governance, asset sales, communication, accountability, expense reduction. Let’s not forget, four of the five candidates took bold action in December 2016, removing two self-interested Directors that exercised control.”

The activist bloggers will vote against a combined Chairman/CEO arrangement at PICO. “Mr. Webb has thus far done a fine job as CEO, but he has an almost-two decade track record of silence in the face of shareholder abuse. We believe that a Chairman’s first reaction to abuse of owners should be a clenched fist, followed by a self-imposed ‘Time Out’ in order to avoid a fight. This description does not apply to Mr. Webb.”

The bloggers express confidence in the Delaware Reincorporation Proposal, an item which they have opposed — and which has failed — for 2 consecutive years. They call this “Delaware Reincorporation 3.0″ The bloggers explain that the rationale for Delaware Reincorporation 3.0 is protection of Net Operating Losses from an “Ownership Change” under Section 382 of the Internal Revenue Code.

“This year, RPN will vote ‘For’ the Reincorporation Proposal 3.0 for three broad reasons. First, there are improvements to the Reincorporation Proposal. Most important to many shareholders, the 2017 Reincorporation Proposal maintains cumulative voting. It also retains other shareholder protections, namely the ability take action by written consent and a 10% threshold to call a special meeting. The blank check preferred stock provisions are also improved. The second area of improvement which motivates us to vote ‘For’ Delaware Reincorporation 3.0 involves the people. These Directors are different; up until now, these gentlemen have proven themselves to be shareholder oriented and trustworthy. Corporate governance has been improved, capital is poised to be returned and promises have mostly been fulfilled. Greater integrity deserves greater trust. Third, we will vote for Delaware Reincorporation 3.0 due to corporate governance improvements. Implementation of best practices at PICO have left these Directors sufficiently accountable to shareowners. With hard delcassification, cumulative voting, Director compensation paid in shares and two large shareowners on the Board, we feel that NOL protection can be prioritized over maximum equityholder rights.”

To increase the chances of passage of Delaware Reincorporation 3.0, the bloggers encourage the PICO Board to begin share repurchases. “We understand that this Board has a complicated decision regarding return of capital. There are several options, all with costs, benefits, supporters and detractors. But as our Crack Strategist said: ‘Look, even if you buy back 10,000 shares per day at an accretive price, that’s still accretive to shareholder value.’

Given PICO’s current share price, we believe the Board should begin repurchasing shares, even if in only token amounts. Token value creation is better than no value creation. PICO could alert owners to the buyback before the Annual Meeting with a press release covering other sundry matters, with mention of capital return in an ‘Oh by the way’ fashion. That way, RPN could advocate for Reincorporation 3.0 with confidence and PICO hawks would be quieted.”

The bloggers continue their campaign to maximize value at PICO’s homebuilder subsidiary, UCP. They state, “At PICO, changes implemented and poised to be implemented, represent modern best practices. At UCP, corporate governance is a sorry affair. Here are the examples of poor corporate governance and entrenchment at UCP:

A) Classified Board;

B) No stockholder action by written consent;

C) Directors removable by shareholders only for cause;

D) Special Meetings only called by Board, Chairman or CEO;

E) No cumulative voting; and

F) Potentially abusive preferred stock issuance.

“PICO recently filed a 13D/A as majority investor in UCP. PICO makes 7 Proposals to improve corporate governance at UCP, all of which PICO has adopted itself. In other words, PICO isn’t asking UCP to do anything it has not already done.

“PICO’s 7 Proposals for UCP should be included in the UCP Proxy Statement and endorsed by the UCP Board. If approved by UCP’s independent shareholders, UCP should adopt the 7 Proposals.

“Anything less will be interpreted as entrenchment and breach of fiduciary duty.”

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 $662 million in assets and $426 million in shareholder equity. Amundi and River Road Asset Management LLC collectively own more than 16% of PICO. Other activists at (RPN) have taken to the Internet to advance the shareholder cause.