CEO Pay Negotiated in “Bad Faith”, River Road Says

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 $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 May 11, 2016, River Road Asset Management filed another 13-D with the Securities and Exchange Commission. And RPN rejoiced.

In a letter addressed to the PICO Board, J. Justin Akin, RRAM small cap fund manager, notes that in its 11-year history, River Road has only filed three 13-Ds, the latest of which targeted PICO in February 2015.

Mr. Akin writes, “The new employment agreement of the CEO was first disclosed in the most recent 10-K (filed 3/14/16). The contract was finalized prior to the Central Square settlement agreement, which resulted in significant changes to the composition and committee assignments of the PICO Board. Since the agreement was negotiated over several months, many of the new Board members (Eric Speron, Howard Brownstein, Raymond Marino, Daniel Silvers, and Andrew Cates) had little or no opportunity to influence it. RRAM STRONGLY BELIEVES THE NEW EMPLOYMENT AGREEMENT OF THE CEO WAS NEGOTIATED IN BAD FAITH AND LACKS PROPER ACCOUNTABILITY.” [Capitalization in original].

The activist bloggers gleefully join in Mr. Akin’s frustration: “While such a statement would be tame for RPN, mention of “bad faith” is pretty strong for Mr. Akin and the genteel River Road. Mr. Akin is implying that Mr. Hart and the equally corrupt and incompetent Carlos Campbell and Michael Machado, manipulated the Directorship process to push through the criminal Hart Compensation Scheme, to the detriment of PICO shareholders. And River Road is not impressed.”

Mr. Akin continues to voice displeasure: THE BOARD’S OPTIONS TO
HOLD THE CEO ACCOUNTABLE APPEAR VERY LIMITED. RRAM HOPES CEO JOHN HART WILL RECOGNIZE THE NEED TO ALIGN HIS PERSONAL INTERESTS WITH THE INTERESTS OF PICO AND ITS SHAREHOLDERS, AND WILL CONSIDER AMENDING HIS EMPLOYMENT CONTRACT.” And, “The new executive bonus plan of the PICO management team was also disclosed in the 10-K and RRAM found several elements concerning. SIMPLY PUT, THE NEW EXECUTIVE BONUS PLAN IS DESTRUCTIVE TO SHAREHOLDER VALUE AND IT  MUST BE RE-WRITTEN.” [Capitalization in original].

The activist bloggers, giddy at finally having an ally, pile on: “Wow. ‘Destructive to shareholder value . . . ‘ For a value investor like River Road — resolutely focused on corporate governance — there is no deeper expression of dissatisfaction.

Mr. Akin notes that by promulgating the criminal Hart Compensation Scheme, Messrs. Campbell, Machado and Eric Speron, have tied both the hands of the Board and PICO shareholders — which was exactly their intent. As we have said all along, the criminal Hart Compensation Scheme was no accident.”

Mr. Akin proffers three suggestions:

1) The PICO Headquarters in La Jolla, California should be shut;

2) The number of seats on the Board should be reduced to 7 at the 2016 Annual Meeting; and

3) The charge of the Strategy Committee should be clarified.

Mr. Akin concludes by writing, “RRAM HOPES THE PICO BOARD HEARS OUR CONCERNS AND ACTS WITH A STRONG SENSE OF URGENCY. We must remind the Board that long-term PICO shareholders have suffered poor returns long enough. PICO SHARES ARE CURRENTLY SELLING NEAR HISTORICAL LOWS SINCE PICO BEGAN TRADING PUBLICLY IN 1991. EVERY
CURRENT SHAREHOLDER THAT HAS OWNED PICO FOR OVER 6 MONTHS IS AT A LOSS. Given the low ownership of PICO stock by many of its Board members, now would be an opportune time for new purchases to signal confidence to the market.” [Capitalization in original].

The activist bloggers gravitate to the relocation suggestion: “This migration would give Mr. Hart, Max Webb (PICO CFO) and John Perri (PICO CAO) justification to resign “For Good Reason,” triggering roughly $8 million in cash payments to these Three Profiteers.

However, $8 million sounds like a lot of money for three guys who confidently wrote that if it weren’t for their dedication and altruism to PICO, they’d be working at a hedge fund/private equity firm. Maybe they meant “hedge clipper” and “private nanny.” Such job descriptions are more appropriate for Messrs. Hart, Webb and Perri – especially given their track record as complete failures in corporate America – measured by any and all relevant metrics.”

The activist bloggers close their post with optimistic sentiments, stating, “Mr. Akin and River Road have something up their sleeve, as the 13-D filing in and of itself, is meaningless. But there are headwinds. It is too late to nominate a director for the 2016 Annual Meeting (although there is a chance River Road did so by the April 9 deadline). The criminal Hart Compensation Scheme can only be altered with The Juicer’s consent. Central Square already sold its votes to PICO. The Entrenched Directors, comprised of Messrs. Hart, Campbell, Machado and Slepicka, have proven themselves to be corporate sociopaths.”