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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO
RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. __)
PICO Holdings, Inc.
(Name of Issuer)
Common Stock, par value $0.001 per share
(Title of Class of Securities)
693366205
(CUSIP Number)
Thomas D. Mueller
Chief Operating Officer and Chief Compliance Officer
462 South Fourth Street, Suite 2000
Louisville, KY 40202
(502) 371-4100
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 10, 2016
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following boxX
(Continued on following pages)
(Page 1 of 9 Pages)
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1 NAMES OF REPORTING PERSONS
RIVER ROAD ASSET MANAGEMENT, LLC
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY)
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
OO
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
2(d) or 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
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7 SOLE VOTING POWER
NUMBER OF 1,554,131
SHARES ------ -------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY NONE
EACH ------ -------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 1,896,668
----------------------- ------ -------------------------------------------------
10 SHARED DISPOSITIVE POWER
NONE
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,896,668
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.2%
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14 TYPE OF REPORTING PERSON
IA
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(Page 2 of 9 Pages)
ITEM 1. SECURITY AND ISSUER
This statement relates to shares of Common Stock, par value $0.001 per share
(the "Stock"), of PICO Holdings, Inc. (the "Issuer"). The principle executive
office of the Issuer is located at the following address:
PICO HOLDINGS, INC.
7979 IVANHOE AVENUE, SUITE 300
LA JOLLA, CALIFORNIA 92037
ITEM 2. IDENTITY AND BACKGROUND
The information regarding the persons filing this statement is as follows:
(a) The name of the persons filing are:
RIVER ROAD ASSET MANAGEMENT, LLC ("RRAM") (THE "FILER").
(b) The business address of the Filer is as follows:
462 SOUTH FOURTH STREET, SUITE 2000, LOUISVILLE, KY 40202
(c) Present principal occupation or employment of the Filer and the name,
principal business and address of any corporation or other in which such
employment is conducted: RRAM IS A SECURITIES AND EXCHANGE COMMISSION
REGISTERED INVESTMENT ADVISOR.
THE NAME, BUSINESS ADDRESS, BUSINESS ACTIVITY AND PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT OF EACH EXECUTIVE OFFICER AND DIRECTOR OF THE FILER
ARE SET FORTH IN ANNEX A, WHICH IS INCORPORATED HEREIN BY REFERENCE.
(d) During the last five years, none of the Filer, or the persons listed in
Annex A, have been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(e) During the last five years, none of the Filer, or the persons listed in
Annex A, were a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining future violations of,
or prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
(f) Citizenship:
RRAM IS ORGANIZED UNDER THE LAWS OF DELAWARE.
THE CITIZENSHIP OF EACH EXECUTIVE OFFICER AND DIRECTOR OF THE FILER WHO IS A
NATURAL PERSON IS SET FORTH IN ANNEX A HERETO, WHICH IS INCORPORATED HEREIN
BY REFERENCE.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The source of funds used in purchasing the Stock of the Issuer is RRAM client
funds for which RRAM acts as investment advisor pursuant to an investment
advisory agreement between each RRAM client and RRAM. The amount of funds used
in purchasing the Stock of the Issuer is $35,316,168.91.
(Page 3 of 9 Pages)
ITEM 4. PURPOSE OF TRANSACTION
The Stock was acquired for investment purposes in the ordinary course of
business. As such, the Filer may purchase, hold, vote, trade, dispose, sell or
otherwise deal the Stock for the benefit of its clients depending on changes in
the per share price of the Stock, or related to changes in the Issuer's
operations, management structure, business strategy, future acquisitions, growth
prospects, liquidity, capital allocation, including use of leverage, or from the
sale or merger of the Issuer. The Filer may discuss such matters, and
specifically may discuss board of director nominees and may suggest potential
board of director nominees, with the Issuer's management or directors, other
shareholders, existing or potential strategic partners or competitors,
investment and finance professionals, and other investors. Such analysis and
discussions may result in the Filer materially modifying their ownership of the
Stock. The Filer may also exchange information with the Issuer pursuant to
confidentiality or similar agreements, propose changes in its operations,
governance, capitalization, or propose one or more of the actions described in
sections (a) through (j) of Item 4 of Schedule 13D, all in order to enhance
shareholder value. The Filer does not intend to seek control of the Issuer or
participate in the day-to-day management of the Issuer. Certain officers of RRAM
sent a letter on May 11, 2016 to the Issuer's Board of Directors suggesting that
the company adjust the CEO's new employment agreement and management's new
incentive compensation plan. Additional suggestions regarding corporate overhead
and corporate governance were also made to increase the value of the company.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Based on 23,037,587 shares of Common Stock of the Issuer outstanding as of
May 6, 2016, the Filer, or the persons listed in Annex A, may be deemed to
beneficially own 1,896,668, or 8.2%, of the Issuer's outstanding shares of
Common Stock.
(b) The Filer, or the persons listed in Annex A, have the sole power to vote or
direct the vote of 1,554,131 shares of the Stock and to dispose or direct
the disposition of 1,896,668 shares of the Stock that the Filers may be
deemed to beneficially own.
(c) The Filer effected the following transactions in the Stock in open market
transactions on the dates indicated, and such transactions are the only
transactions in the Stock by the Filer during the sixty days prior to and
including May 10, 2016 (date range: March 12, 2016 through May 10, 2016):
(1) NAME (2) DATE (3) NUMBER OF (4) PRICE PER (5) HOW
SHARES OF SHARE OF COMMON TRANSACTED -
COMMON STOCK STOCK SELL OR BUY WHERE TRANSACTED
RRAM 3/16/2016 18,400 9.49 Buy RRAM Principal Place of Business
RRAM 3/17/2016 9,600 9.88 Buy RRAM Principal Place of Business
RRAM 3/22/2016 2,000 10.57 Buy RRAM Principal Place of Business
RRAM 3/28/2016 500 10.22 Buy RRAM Principal Place of Business
The transactions noted above were purchases or sales of shares effected in the
open market and the table includes commissions paid in per share prices.
(d) Not applicable.
(e) Not applicable.
(Page 4 of 9 Pages)
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER
RRAM is the investment adviser to accounts of RRAM clients pursuant to
investment advisory agreements between RRAM clients and RRAM. Each investment
advisory agreement provides RRAM with the authority, among other things, to
invest account funds in the Stock, to dispose of the Stock, and to file this
statement on behalf of the account. Some, but not all, investment advisory
agreements provide RRAM with the authority to vote for the Stock. The number of
shares of Stock for which RRAM has sole voting power is reflected on RRAM's
cover page.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT A -Letter to the Board of Directors of PICO Holdings Inc. dated May 11,
2016.
ANNEX A - The name, business address, business activity, present principal
occupation or employment and, if natural person, citizenship of each executive
officer and director of the Filers.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
May 10, 2016 RIVER ROAD ASSET MANAGEMENT, LLC,
a Delaware limited liability company
/s/ Thomas D. Mueller
----------------------
By: Thomas D. Mueller
Chief Operating Officer and
Chief Compliance Officer
(Page 5 of 9 Pages)
EXHIBIT A -
May 11, 2016
The Board of Directors of PICO Holdings Inc.
7979 Ivanhoe Avenue, Suite 300
La Jolla, CA 92037
Dear Members of the Board,
River Road Asset Management LLC ("RRAM"), on behalf of its clients, owns
approximately 1.9 million common shares of PICO, which represents an 8.2%
ownership interest in the company. RRAM is a value-oriented institutional equity
manager with over $6.2 billion in assets under management as of 12/31/15. We
were previously shareholders of PICO from early 2006 to mid-2008 and we
re-established a new position in late 2012.
One of the key tenets of the River Road investment philosophy is to invest in
companies with shareholder-oriented management teams. When PICO fell short of
our standards in the past, RRAM felt compelled to act on behalf of our clients
and all PICO shareholders. WHEN WE FILED OUR 13-D ON PICO IN FEBRUARY 2015, IT
WAS ONLY OUR THIRD SUCH FILING IN RIVER ROAD'S 11-YEAR HISTORY.
In conjunction with our 13-D, RRAM wrote letters to the PICO Board that
expressed concern regarding PICO's long-term operating performance and its
corporate strategy, and offered ideas to unlock shareholder value. We encouraged
the Board to sell Northstar to rid PICO of continued operating losses, sell UCP
to a larger homebuilder, and to monetize Vidler's water assets in a reasonable
time period. RRAM suggested PICO return proceeds from asset sales to
shareholders through share repurchases or special dividends. Additionally, RRAM
introduced a shareholder proposal for the PICO Board to take action to
declassify itself, which shareholders overwhelmingly approved. We also raised
concerns to the Board regarding the compensation arrangement of the CEO.
During the November 2015 investor day presentation, PICO revealed a revision to
its business model consistent with our suggestions to monetize assets and
authorized a $50 MM share repurchase plan. PICO also announced a reduction in
the base salary of the CEO and forthcoming adjustments to the management
compensation plan. Shortly thereafter, Eric Speron was appointed to the Board, a
voice representing an institutional shareholder we trusted to act in the best
interests of PICO shareholders. Thus, satisfied with the announced changes at
PICO, RRAM moved to a passive 13-G status in late December 2015. UNFORTUNATELY,
IT APPEARS WE REMOVED OUR 13-D FILING TOO QUICKLY.
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.
The new employment agreement of the CEO puts the current Board at a significant
disadvantage. Why didn't the legacy members wait for the newly reconstituted
PICO Board to negotiate a new contract with the CEO? If PICO is truly in
wind-down mode, why sign the CEO to a 5-year deal that does not strategically
align with the announcements made on investor day? Why was the CEO's payment for
termination without cause increased from $6 MM to $10 MM? What mechanisms does
the Board have if it is unhappy with CEO performance? Given the 5-year contract,
a $5 MM payout if the CEO voluntarily departs for "good reason," and a $10 MM
termination payout, 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.
(Page 6 of 9 Pages)
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.
In the cash incentive program of the new compensation plan, THE 20% ADJUSTED NET
GAIN THE MANAGEMENT TEAM IS ENTITLED TO RECEIVE IS EXTREME AND WILL
SIGNIFICANTLY IMPAIR ANY NET ASSET VALUE CALCULATION OF PICO. The compensation
plan seems to be designed on a "2 and 20" pay structure, which has been widely
discredited by the investment community and the marketplace. Very few elite
investors with outstanding long-term track records can raise assets under those
terms. RRAM SUGGESTS 10% OF THE NET GAIN ON ASSETS SOLD IS A MORE REASONABLE
ARRANGEMENT. It is also the same metric used by FNFV Group (FNFV), another RRAM
investment that has a business plan similar to PICO and is run by legendary
investor/entrepreneur Bill Foley. In July 2015, RRAM suggested FNFV as a
candidate for PICO's peer group for compensation analysis. Yet, our advice was
ignored by the compensation committee and no peer changes were made (as noted by
the 10-K/A filed April 22, 2016).
THE CASH INCENTIVE PROGRAM SET AN ARBITRARILY LOW WATER MARK FOR ASSET
VALUATIONS WHEN CALCULATING POTENTIAL BONUSES. Using book value as of 12/31/15,
Vidler's existing assets have recorded roughly $45.6 MM of impairments during
their ownership period. When these impairments were taken in the past, PICO
management often argued shareholders should ignore these write-downs caused by
the peculiarities of accounting for water rights under U.S. GAAP. Yet, under
this new arrangement, PICO management is potentially entitled to an extra $9.1
MM of compensation ($45.6 MM x 20%) at the expense of shareholders who have
suffered these losses in book value. THE WATER MARK SHOULD BE RESET HIGHER TO
REFLECT THE TRUE COST OF PICO'S INVESTMENTS (including Vidler assets plus the
corporate ownership interests of Mindjet, Mendell Energy, and Synthonics).
THE COMPENSATION PLAN FAILS TO ACCOUNT FOR THE TIME VALUE OF MONEY, WHICH WILL
BENEFIT THE MANAGEMENT TEAM AT THE EXPENSE OF SHAREHOLDERS. Given Fish Springs
Ranch (FSR) is Vidler's largest asset, it is very significant Vidler spent $101
MM in 2007 to build this pipeline. Over its ownership period, FSR hasn't
generated any substantive cash flows for Vidler. While RRAM believes FSR is
worth considerably more than its current book value, the IRR on the investment
is likely to be low due to its long ownership period. PICO'S COST OF CAPITAL
SHOULD BE INCORPORATED INTO THE COMPENSATION PLAN.
WHILE THERE IS A RETURN OF CAPITAL COMPONENT TO THE COMPENSATION PLAN, IT DOES
NOT INCORPORATE THE PICO SHARE PRICE OR NAV/SHARE. RRAM fears the management
team is incentivized to wait several years to monetize assets. Under this
scenario, PICO shareholders run the risk of missing the current favorable asset
monetization window while incurring the costs of management salaries, corporate
overheard, etc. RRAM BELIEVES THE BETTER OUTCOME WOULD BE PICO SELLING ASSETS
TODAY AT SLIGHT DISCOUNTS TO MARKET VALUE AND USING THE PROCEEDS TO AGGRESSIVELY
REPURCHASE ITS UNDERVALUED SHARES, WHICH WOULD DRIVE MORE VALUE PER SHARE.
(Page 7 of 9 Pages)
THERE ARE ALSO OUTSTANDING ISSUES REGARDING CORPORATE OVERHEAD AND CORPORATE
GOVERNANCE THAT MUST BE ADDRESSED PROMPTLY, AS WE BELIEVE TIME IS OF THE
ESSENCE. The PICO Board should consider the following steps to improve the value
of the company:
o THE CORPORATE OFFICE IN LA JOLLA SHOULD BE SHUT DOWN. It is an extraneous
expense. The corporate headquarters should be relocated to Reno, NV, where
a majority of PICO's assets reside and where Vidler is already based.
o THE NUMBER OF SEATS ON THE PICO BOARD SHOULD BE REDUCED. The Board size is
too large and the expense too high for such a small company. Per the
settlement agreement with Central Square Management, PICO's Board size will
be reduced from nine to eight at the conclusion of the 2016 annual meeting.
RRAM believes the Board should be further reduced to seven seats at the
conclusion of the 2016 annual meeting with additional reductions in the
future once significant asset sales are completed.
o THE ROLE AND MISSION OF THE NEWLY CREATED STRATEGY COMMITTEE SHOULD BE
CLEARLY ARTICULATED TO SHAREHOLDERS. RRAM believes its three members
(Andrew Cates, Daniel Silvers, and Eric Speron) are very talented leaders
and investors. We hope they are being empowered to oversee asset
depositions and to provide additional oversight and assistance to the PICO
management team.
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.
RRAM TAKES ITS FIDUCIARY DUTY VERY SERIOUSLY IN ORDER TO PURSUE THE BEST
INTERESTS OF OUR CLIENTS. We would be happy to travel to La Jolla to discuss
these recommendations, hear feedback, and to answer any questions. Please
contact us at 502.371.4100 at your earliest convenience.
Sincerely,
/s/ J. JUSTIN AKIN
------------------
J. Justin Akin
Portfolio Manager
/S/ R. ANDREW BECK
------------------
R. Andrew Beck
President & CEO, Senior Portfolio Manager
/S/ JAMES C. SHIRCLIFF
----------------------
James C. Shircliff, CFA
Chief Investment Officer
(Page 8 of 9 Pages)
ANNEX A
The name, business address, business activity, present principal occupation or
employment and, if natural person, citizenship of each executive officer and
director of the Filer are set forth in Exhibit A hereto, which is incorporated
herein by reference.
RIVER ROAD ASSET MANAGEMENT, LLC
NAME BUSINESS ADDRESS BUSINESS ACTIVITY PRESENT PRINCIPAL CITIZENSHIP
OCCUPATION OR EMPLOYMENT
Shircliff, James C. 462 S. 4th Street Chief Investment Chief Investment Officer United States
Officer
Suite 2000
Louisville, KY 40202
Beck, R. Andrew 462 S. 4th Street President & CEO President & CEO United States
Suite 2000
Louisville, KY 40202
Sanders III, 462 S. 4th Street Executive Vice Executive Vice President United States
Henry W. Suite 2000 President
Louisville, KY 40202
Forsha, Thomas S. 462 S. 4th Street Co-Chief Investment Co-Chief Investment United States
Suite 2000 Officer Officer
Louisville, KY 40202
Deuser, Greg E. 462 S. 4th Street Chief Risk Officer Chief Risk Officer United States
Suite 2000
Louisville, KY 40202
Mueller, Thomas D. 462 S. 4th Street Chief Operating Chief Operating Officer United States
Suite 2000 Officer and Chief and Chief Compliance
Louisville, KY 40202 Compliance Officer Officer
(Page 9 of 9 Pages)