As originally appeared in the Troubled Company Reporter.
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. Central Square Management LLC and River Road Asset Management LLC collectively own more than 11% of PICO. Other activists at http://ReformPICONow.com/ (RPN) have taken to the Internet to advance the shareholder cause.
The bloggers update readers on the latest share ownership moves by PICO insiders. They said, “The first week in 2017 brought lots of equity acquisition activity to the PICO/UCP Industrial Complex. Up until now, Daniel Silvers, PICO Lead Independent Director and Andrew Cates, PICO Director and Chair of the Compensation Committee, owned no PICO shares.”
According to the most recent Form 4s, filed with the Securities and Exchange Commission, Messrs. Silvers and Cates took all equity for their Director Compensation for 2017 and both reached into their wallets to buy additional shares in the open market.
Mr. Silvers’ Form 4 indicates that he purchased 5,000 PICO shares on January 5 and 6, 2017 at an average price of $15.20 per share, for a total investment of about $76,000.
According to a second Form 4, Mr. Silvers elected to receive 11,708 Restricted Stock Units, with an notional value of $175,000, for his Director Compensation in 2017 — his entire annual retainer. Pursuant to the updated Nonemployee Director Compensation Policy, Mr. Silvers was entitled to a base of $75,000 in RSUs, and could elect RSUs of $62,500 as a ‘Member,’ plus $25,000 in RSUs as Lead Independent Director, plus $12,500 in RSUs as Chair of the Corporate Governance and Nominating Committee.
Mr. Cates’ Form 4 indicates that on January 3, 2027, he purchased 4,100 PICO shares at $15 per share. Total cash outlay: about $61,500.
According to a second Form 4, Mr. Cates elected to receive 10,454 RSUs, worth $156,250, for his Director Compensation in 2017 — his entire annual retainer. Pursuant to the updated Nonemployee Director Compensation Policy, Mr. Cates was entitled to a base of $75,000 in RSUs, and could elect $62,500 in RSUs as a ‘Member,’ plus $18,750 in RSUs as Chair of the Compensation Committee.”
The bloggers provide greater detail. “The open market purchases and RSU elections are significant if we follow the personal cash flows for Messrs. Silvers and Cates. Assuming both men pay roughly 40% in taxes, in April 2018, the RSUs will trigger a tax payment for Mr. Silvers of about $70,000 in cash and Mr. Cates of about $62,500 in cash. This cash outflow will have no corresponding inflow — Messrs. Silvers and Cates are a long way off from realizing any value from their PICO RSUs. While the shares vest over the next 12 months, they won’t be issued until Messrs. Silvers and Cates no longer serve on the PICO Board — which is likely a few years away.
In addition to the tax payments due April 2018, Messrs. Silvers and Cates both doubled down on PICO with their open market purchases. Between now and April 2018, Mr. Silvers will have shelled out about $146,000 in cash for PICO shares: $76,000 for open market purchases and $70,000 for April 2018 taxes. Between now and April 2018, Mr. Cates will have dispensed about $124,000 in cash for PICO shares: $61,500 for open market purchases and $62,500 for April 2018 taxes.
The bloggers said, “We salute this alignment of economic interest and manifestation of confidence in our firm. Shareholders have been uneasy about this absence of equity ownership for some time. Now both men have put such concerns to rest. We hope these trades are prosperous for them.”
The bloggers are not so pleased with the compensation situation of two other PICO Directors, called “Lame Ducks.” The bloggers comment, “There are two Form 4s for Hapless Howard Brownstein. The first Form 4 and the second Form 4, taken together, indicate that Howie elected to receive 10,845 RSUs at about $14.98 per unit, which sums to $162,500. Howie expresses his faith in PICO going forward even though he won’t be serving as a Director; $162,500 represents his entire 2017 Board Compensation.
Raymond ‘Delaymond’ Marino elected to receive 5,018 RSUs at $14.95, valued at $75,000. Assuming he was entitled to the “Member” compensation of $50,000 cash or $62,500 in RSUs, the Form 4 makes clear that Delaymond took maximum cash. Delaymond appropriately sits on zero committees.
The bloggers said, “We calculate that Messrs. Brownstein and Marino destroyed more value for PICO owners than they created — a pattern which continues in 2017. Both men have received the full $75,000 RSU base and ‘Member’ compensation (either $50,000 cash or $62,500 RSUs) for a year’s worth of service, but they will only serve as Directors for 4 months.”
“While Chairman, Delaymond frequently preached cost savings. Apparently, his dedication to preservation of shareholder capital only extended to non–Marino compensation. He exhibits no hesitation in taking 12 months of compensation for 4 months of work.
“Economically speaking, Delaymond and Howie are only entitled to $25,000 and $33,000 in Director Compensation, respectively — as they will serve for only one third of the year. That both men either negotiated such a deal or simply are accepting the money by default, their greed and self–interest is apparent and reflects poorly on both. We find it especially objectionable in the case of Mr. Marino, who has a net worth of about $10 million, with two houses, one of which is located at one of America’s most prestigious golf courses.
“While this is a rotten deal for shareholders, we applaud Messrs. Silvers, Cates and Eric Speron for negotiating it; on a net basis, it is better to pay Howie and Delaymond off and bid them goodbye.”
The bloggers have a suggestion: “If Messrs. Brownstein and Marino had any nobility, they would voluntarily prorate their 2017 compensation. We don’t know how such men sleep at night — taking 12 months of shareholder capital for 4 months of work. We assume money is more important that honor.”
The bloggers continue their commentary on UCP CEO Dustin Bogue. “At the current UCP stock price of $12.50, UCP CEO Dustin Bogue straddles the line between compliance and noncompliance with Officer Stock Ownership Guidelines — assuming those Guidelines are still operative.”
“According to a recent Form 4, Mr. Bogue beneficially owns 84,650 shares and equivalents. This parcel of securities has a current value of $1.058 million, which is just above the $1 million threshold that Mr. Bogue must maintain. Any moderate decline in UCP’s stock price will throw Mr. Bogue out of compliance with the Guidelines.
“For the umpteenth time, we call on UCP Chairman Michael Cortney, who is also Chair of the UCP Compensation Committee, to clarify for owners the status of the Guidelines. If Mr. Cortney is unwilling to do so, he should be replaced as Chair of the Comp Committee by a Director who will.”