NAPERVILLE, Ill., Feb. 12, 2016 /PRNewswire/ -- Central Square
Management LLC (together with its affiliates, "Central Square"),
one of the largest shareholders of PICO Holdings, Inc. ("PICO" or
the "Company")(NASDAQ:PICO), with ownership of approximately 5.6%
of PICO's outstanding shares, today announced that it has delivered
a letter to the Company's Board of Directors (the "Board"),
responding to the Company's recent announcement that it has
appointed two new directors to the Board to replace each of
Kristina Leslie, former Chair of the
Board, and Robert Deuster, who
recently resigned from the Board.
The full text of the letter follows:
February 12,
2016
PICO Holdings, Inc.
7979 Ivanhoe Avenue, Suite 300
La Jolla, CA 92037
Attn: Board of Directors
To the Directors of PICO Holdings, Inc.:
Central Square Management LLC, together with its affiliates
("Central Square"), is one of the largest shareholders of PICO
Holdings, Inc. ("PICO" or the "Company"), with ownership of
approximately 5.6% of the outstanding shares. We are writing to
express our concerns with the Company's recent announcement on
February 9, 2016 that Kristina Leslie, former Chair of the Company's
Board of Directors (the "Board"), and Robert Deuster, resigned from the Board and that
two new directors, Howard Brod
Brownstein and Raymond V. Marino
II, were appointed to the Board. As you know, over the past
16 months, we have persistently and repeatedly tried to engage in a
constructive dialogue with the Board and PICO's management team to
discuss our concerns regarding the Company's prolonged
underperformance and poor governance in addition to several
strategies, which, if implemented, we believe would materially
improve the Company's performance for the benefit of all PICO
shareholders. As part of these efforts, we recommended on
numerous occasions the addition of three highly qualified
individuals to the Board, including Anthony
Bergamo, James Henderson and
Daniel Silvers, and called on the
Board to immediately engage with us to agree on a process for
seating each of Messrs. Bergamo, Henderson and Silvers, but to no
avail.
We were therefore disappointed to hear that the Board appointed
two new directors to replace Ms. Leslie and Mr. Deuster without
even attempting to engage in meaningful dialogue with one of its
largest shareholders despite our persistent efforts to work with
PICO to reconstitute the Board. As we have continuously
stated in our prior written and verbal correspondence, we believe
fresh perspective is needed on the Board in order to put the
Company on the path towards creating value for shareholders
rather than maintaining the troubling status quo of creating wealth
for Mr. Hart, the rest of his management team and Board members
at the expense of shareholders. While we applaud the
exit of Ms. Leslie and Mr. Deuster, we believe the appointments of
Messrs. Brownstein and Marino represent yet another flagrant
attempt by management and the Board to further entrench themselves
while ignoring the highly-qualified candidates we originally
recommended in October 2015 and
refusing to engage in meaningful negotiations with us to
reconstitute the Board.
In its February 9th
announcement, the Company stated that "the input we have received
from our shareholders" guided its choices for the new Board members
and specifically, that Mr. Marino was a recommendation from an
institutional shareholder. We find this statement to be both
self-serving and highly deceptive, especially in light of Ms.
Leslie's prior explicit statements to us on behalf of the Board
that the candidates we proposed appeared highly-qualified to serve
on the Board. However, despite the existence of these
highly-qualified candidates vetted by one of its largest
shareholders, the Company instead appears to have squandered
additional shareholder resources by engaging a search consultant in
what, we can only assume, was an effort to identify candidates that
management believed would be more amenable to accommodating the
status quo.
Further, the supposed "major" institutional shareholder that
recommended Mr. Marino did not even hold a 1% stake in the Company
as of the last date in which its ownership was disclosed.
Quite simply, we believe the Board and management team preferred to
appoint candidates of their own choosing and that any claim that
such appointments were "responsive" to shareholders is an illusion
of "change" designed to maintain the status quo without
accountability to the Company's largest shareholders. While
this dynamic would seem to create a more comfortable situation for
management and the remaining Board members by further entrenching
themselves, we believe all shareholders would be better served with
new directors who could offer more significant change to PICO's
value destructive ways by being empowered to constructively
question and challenge the status quo represented by PICO's
management team.
In light of the recent changes, however, it appears that both
the Company and Central Square now agree that a new Board is
required at PICO. We merely disagree on the constitution of the
Board. We remind you that since our initial public letter to
Ms. Leslie and the Board in August of 2015, the Company has
announced the appointment of three new directors, two of whom it
claims were in response to the recommendation of its large
institutional shareholders. Given PICO's refusal to add the
highly qualified candidates recommended by us, one of its largest
shareholders, we believe these "changes" are in reaction to our
publicly stated concerns regarding the Company in an attempt to
appease shareholders and divert their attention from the real
issues facing the Company.
We remind you of some of our core concerns:
- Management's compensation program continues to be both
excessive and misaligned with the interests of shareholders, which
includes Mr. Hart's base salary that is nearly double the median of
the CEO's of the Company's self-defined peer group (and that is
AFTER the recent underwhelming reduction) as well as a bonus
structure that continues to be poorly-aligned with shareholder
interests;
- The Board has a history of overseeing value-destructive capital
allocation decisions, including, among others, its calamitous
investment in PICO Northstar Hallock, LLC, which we believe
resulted in the destruction of more than $85
million of shareholder value;
- Ongoing corporate governance failures with no clear measurement
system of, nor consequences for, management's mistakes, which we
believe have led to massive shareholder value destruction;
- Bloated corporate expense structure;
- History of appropriating shareholder money, which we believe
has been used to unjustly enrich management;
- A staggered Board despite shareholders' approval of a proposal
at the 2015 annual meeting recommending that PICO declassify the
Board, which has the effect of hampering shareholders' ability to
seek true change at the Company;
- A long-term track record of share price deterioration as
demonstrated by PICO's share price underperformance compared to all
major indices on a YTD-basis and during all relevant trailing
periods (1-, 3-, 5-, and 7-years) as depicted in the table below;
and
- Poor operating performance as demonstrated by a decline in
PICO's book value per share from nearly $28.00 in 4Q07 to approximately $15.00 as of 3Q15.
Total Shareholder
return (PICO vs. S&P 500 index)
|
|
|
YTD
|
|
|
|
|
|
2016
|
1-yr.
|
3-yr.
|
5-yr.
|
7-yr.
|
PICO
|
-15%
|
-47%
|
-59%
|
-72%
|
-66%
|
S&P
500
|
-5%
|
-2%
|
37%
|
69%
|
173%
|
* Source:
Bloomberg. Data through Jan. 29, 2016 and assumes
dividends reinvested into the index.
|
We believe it is highly inappropriate for the incumbent Board
members and management team, which have overseen such dramatic
destruction of shareholder value, to seemingly hand-pick these
newly appointed directors under the illusion of change without
being held accountable for the Company's poor performance.
Shareholders require real and sweeping change on the Board, not
just the appearance of change in reaction to the challenge of a
publicly concerned and critical large shareholder.
In fact, we found the February
9th announcement to be insulting to shareholders
and contrary to our recent efforts to impose appropriate corporate
governance standards, which only reaffirms our belief that the
current management team and Board are more interested in preserving
the status quo than engaging in meaningful dialogue with one of its
largest shareholders to reach an agreement that offers real and
substantive change for PICO shareholders.
We once again call on PICO's Board and management team to stop
their delay tactics and entrenchment measures, which continue to
utilize corporate resources, by immediately engaging with us to
agree on a process for seating each of Messrs. Bergamo, Henderson
and Silvers, who we believe together have the right mix of skill
sets and experience to help the Board address PICO's challenges and
opportunities with an open mind and a keen sense of urgency.
We also reiterate our request that the Company hold its 2016 annual
meeting no later than April 15, 2016
to enable shareholders to establish a clear mandate for the Company
and to avoid the unnecessary expense of a special meeting that
another shareholder is attempting to call.
Given the Company's refusal to address our repeated concerns and
suggestions to date, however, we have little confidence that any
meaningful agreement will be reached. Should our concerns and
requests continue to fall on deaf ears, we will be left with no
choice but to nominate candidates to the Board at the upcoming
annual meeting so that shareholders can be offered a choice between
the current path, which we believe is characterized by
self-entrenchment and value destruction, and an alternative path
that we believe would create significant value for all shareholders
through accountability driven by highly-qualified Board
oversight. It is unfortunate – but not surprising given
precedent actions of this Board – that the Board has apparently
chosen to waste additional shareholder resources on a proxy contest
rather than work constructively with one of its largest
shareholders to implement meaningful change at the Company.
We are hopeful that the Board will recognize that avoiding a
proxy contest and immediately engaging with us is in the best
interests of its shareholders. As always, we remain open to
engaging in a constructive dialogue with you and members of the
management team to reach an agreement that offers real and
substantive change for PICO shareholders.
Regards,
Kelly Cardwell,
CFA
Managing Partner, Central Square Management
About Central Square Management
LLC
Central Square Management LLC is an
investment management firm that seeks to invest in undervalued
public companies.
Investor contact:
Kelly
Cardwell, (630) 210-8923
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SOURCE Central Square Management LLC