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.
According to Max Webb, CEO, PICO “estimates we have approximately $20 million available to return to shareholders in the near to intermediate-term.”
The bloggers advocate a share buyback: “The PICO Board has a golden opportunity to create value for owners. As Jon Cukierwar of Robotti & Company aptly noted, PICO already has a $50 million Board authorization for share buyback. PICO can repurchase shares right now.
“Why is this important? Because public buyback announcements usually drive up the share price, reducing the potential value to owners. The purchase of shares is an allocation of capital just like any other. Managements don’t seek to pay a higher prices for factories or raw materials. Why should they trumpet a share repurchase thereby raising the price of the shares and decreasing the buyback’s economic efficacy?
“PICO can quietly buy back shares today — as daily volume permits — with no further announcement. And it should.
“Many hedgies have assumed a PICO NAV of $22 and up. If they are remotely right, then $13.35 per share represents amazing value. RPN hopes that the PICO Board steps hard on the share repurchase pedal between now and the Q1 Earnings Release date — when a repurchase update becomes mandatory. At $13.35, PICO could repurchase almost 7% of shares for $20 million. Ever seen a blogger do a cartwheel?”
Next, the bloggers comment on UCP: “We believe that UCP is worth $15-$17 per share in a change of control. We believe UCP is worth $7-$8 per share as a going concern. Pretty much all UCP shareholders and builder analysts agree with our analysis. Respected builder research house Zelman & Associates just published a report on UCP entitled “Improvement Continues But Valuation Discount Justified.”
“The preeminent builder analysts say that UCP deserves to trade at 85% of book value. No other builder, with a debt to capital ratio in the 40%s, trades at a discount to book.
“If UCP wants to remain independent, it should stand in front of its majority owner’s shareholders and make its case. Messrs. Bogue and Cortney should be willing to justify their refusal to pursue a change in control; a preponderance of evidence is against them. The question these men should answer is the following:
“If investors value UCP at $10.70 per share today and UCP could be sold for $15 per share tomorrow, explain why continued independence is rational and economically beneficial for the owners of the business?
“If UCP can’t make a persuasive case, it should form a committee, hire an investment banker and start fielding bids.
“The deck is stacked against Messrs. Cortney and Bogue. They recently failed to convince debt buyers of the wisdom of investing in their firm. If debt investors — who occupy a superior position in the capital structure — can’t be persuaded, why should equity investors be persuaded?”