Bloggers Sound Alarm On Entrenchment

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 14% of PICO. Other activists at have taken to the Internet to advance the shareholder cause.

The bloggers believe they see the start of entrenchment at PICO. They sound a very public alarm. The bloggers remind readers that “in November 15, 2015, PICO announced its ‘Revision to Business Plan.’ The Revision says:

‘With the Company’s share price trading at a discount to its book value, the Company believes the highest potential return to shareholders at this time is from a return of capital.’

With its decision to retain the Synthonics stake, the Board is contravening the Revision — instead of monetizing assets and returning capital, the Board is retaining assets and husbanding capital. The Board has greater confidence in Synthonics than its own shares at half of book value. We find this disturbing.

By husbanding the Synthonics stake, we believe that certain members of the PICO Board are digging in to prolong the process. It looks to us like the first steps at entrenchment — to the detriment of shareholders.

RPN is sounding the alarm now. We see entrenchment.”

The bloggers take Raymond Marino, Chairman, to task for statements made during PICO’s Second Quarter earnings call. “We were stunned by a few things Mr. Marino said during the Q2 earnings call. In relating the news about Slug’s removal from the PICO Board, he said, ‘Concurrent with Ken’s resignation, we reduced the number of seats on our board to seven. I can assure you that the seven of us are all deeply committed to delivering strong corporate governance for PICO.’

The second sentence shocked us. ‘. . . the seven of us are all deeply committed to delivering strong corporate governance for PICO.’

Where has Mr. Marino been the last 5 months since he joined the Board? Has he read any of the 13Ds filed by our institutional shareholders over the last 2 years? Did he examine the ‘Say on Pay’ vote tally from the Annual Meeting?

John Hart and Michael Machado are as committed to shareholder-oriented corporate governance as tapeworms are to the health of their host. These men are corrupt and incompetent. Both are responsible for hundreds of millions of dollars in shareholder value destruction. Mr. Machado is one of the two rogue Directors who signed their name to the criminal Hart Compensation Scheme.”

The bloggers have changed their tune on Chairman Marino. “We were fans of Mr. Marino at first. We wrote complimentary posts about his business achievements. We admired his performance at the Annual Meeting. We placed great faith in his ability and desire to create value at the PICO and UCP Industrial Complex for all owners.

But we became concerned about the intellectual capacity of Mr. Marino about two months ago. We published PICOGate on June 7. This post contributed to the removal of a corrupt and incompetent Director from the PICO Board — a change which will benefit all shareholders.

Mr. Marino was not complimentary of our work. We heard from several reliable sources that Mr. Marino was dismissive of PICOGate and disparaging of our contribution to the PICO campaign for change. We were told that he characterized PICOGate as irrelevant because it came from “some anonymous blog.” Mr. Marino maintained that he had not read our PICOGate piece nor examined the documentary evidence we provided.

We held our tongue. It is always better to allow the arrogant and the unwise to do as they see fit. We keep our egos in check around the RPN International Headquarters. If Mr. Marino wants to express disdain for RPN, that’s fine. We planned to ignore his words and observe his actions.

Whether Mr. Marino likes RPN or not, PICOGate provided irrefutable information. We revealed a 6-year conflict of interest arising from a related transaction between a long-time Director and PICO’s CEO. We provided documentary evidence that is a matter of public record and would be admissible in any court of law. This information led the owners of the business to throw one of the perpetrators from the Board.

We believe that Mr. Marino suffers from a fatal character flaw: he wants to slay the messenger. In our experience, disconfirming evidence usually comes in unpleasant packages. To the arrogant and rigid mind, an anonymous blog must be dismissed.

Our goal at RPN is to create value for all PICO and UCP shareholders. As our avid readers know, we waived the opportunity to pursue a quarter million dollar SEC Whistleblower award in favor of throwing a corrupt and incompetent Director from the PICO Board. For us, this was a large economic sacrifice, but given the result, it was worth every foregone penny. Readers have expressed their appreciation — and that has given us street cred.

Our objective at RPN is to create value for all PICO and UCP shareowners. What is your objective, Chairman Marino? Because if you are scorning our efforts and dismissing our work product, it is clear to us that we don’t share the same objective.

Mr. Marino’s 5-month tenure at PICO has been devoid of the bold action that would create value for shareholders. In fact, zero value has been created in 5 months. We feel Mr. Marino’s response to PICOGate was inappropriately dismissive and unwisely cavalier. With the retention of the Synthonics stake, which is in opposition to both the stated and implied mandate of this Board, we see the beginnings of entrenchment. We sound the alarm now.”