PICO Holdings: More To The River Road by Activist Stocks

River Road Asset Management is a fairly large $7bn fund. It is a diversified fund, but still owns 5% or so of companies given it’s still. However, all those stakes are passive. So the fact that it went active (13D filing) on PICO Holdings in February is interesting. It’s only the third company the fund has ever gone active on in its seven year history.

The fund went active back in early February with a 5% stake. Now it owns 8.8% of the company at a cost basis around $19 a share (the stock trades around $18.40 as of 4/10). Toward the end of February, River Road sent a letter to PICO urging the company to sell noncore assets and implement a buyback.

There are a few ways to unlock some value at PICO. This includes getting the company to monetize its NorthStar stake (est. to be worth $55M), do something with its agribusiness, as well as taking a closer look at its real estate business (called UCP and est. to be worth $180M). The ultimate goal is to potentially get the company bought out, but in the worst case return some capital to shareholders after monetizing those assets.

Its core business is water, which is a unique business as it creates net operating losses even while its business is growing. In any case, it has some $130M in NOLs to use up, which means the after-tax value of the company looks to be somewhere north of $500M.

PICO Holdings