* Berkowitz and Fernandez resign from board
* Fund manager says he does not plan to sell shares
* Shares fall 2.4 percent
(Recasts; adds analyst comment on possible proxy fight,
ownership detail, updates share price)
By Ilaina Jonas
NEW YORK, Feb 14 The largest shareholder of St.
Joe Co. (JOE.N) on Monday quit the board just six weeks after
joining it, raising speculation that he could fight for control
of one of Florida's largest private land owners.
Mutual fund manager Bruce Berkowitz's abrupt resignation,
along with colleague Charles Fernandez, is the latest twist for
St. Joe, which has big stakes in the return of the hard-hit
Florida real estate market.
Its shares have been on a roller-coaster ride since hedge
fund manager David Einhorn last year attacked its aggressive
real estate bets and said the stock is overvalued.
Einhorn, of hedge fund Greenlight Capital, is shorting the
stock, betting its shares will fall. He rose to prominence for
criticizing Lehman Brothers' accounting methods before the
investment bank collapsed.
Berkowitz, who runs Fairholme Capital Management LLC, and
Fernandez sent a terse email to the board on Monday saying the
board was not committed to shareholder value or pay for
performance for management.
Berkowitz said he does not plan to sell his shares. His
fund firm owns nearly 30 percent of St. Joe's stock.
"We're not walking away, and whatever actions we take we're
going to take for all shareholders," Berkowitz told Reuters in
a telephone interview.
"We were trying to get this done in the nicest possible
way, at the director level. But we stated that if we couldn't,
we'll try to get it done at the shareholder level. That's the
reason why we resigned and that's, just say, step one."
Berkowitz had no comment when asked if he would now launch
a proxy fight to gain control of the board, but industry
observers say he may be headed in that direction.
"He said he wanted to do it through the board level, but he
was kind of on the outside looking in even within the board of
directors," Raymond James analyst Buck Horne said. "So that
kind of does imply that he intends to use his shareholder
status to seek changes."
Berkowitz and Fairholme President Charles Fernandez joined
the board in January and raised their stake in the company
after Einhorn's October comments drove down the shares.
Berkowitz has repeatedly said he would buy the whole company if
St. Joe's ownership is highly concentrated. Other large
shareholders include BlackRock (BLK.N), Janus Capital Group
(JNS.N) and T Rowe Price Group (TROW.O).
"If you get two of those three remaining shareholders, you
get whatever board you can get that quorum to agree to," Horne
said. "You can install whomever you want.
Berkowitz and Fernandez joined the board on Jan. 1. On
Monday they withdrew from consideration for election to the
board at the company's annual shareholder meeting. Fairholme
made the disclosures in a filing with the U.S. Securities and
St. Joe owns more than a half million acres of land in the
Florida Panhandle. Since the housing bust, it has become a
master-planner, getting permits and entitlements for others to
build commercial buildings and residential communities.
After a board meeting last week, St. Joe said it had
engaged Morgan Stanley to help it explore options such as a
revised business plan, joint ventures, asset sales, a merger or
sale of the company.
St. Joe shares closed down 2.4 percent, or 64 cents, at
$26.06 on the New York Stock Exchange. The stock is still up
about 53 percent since falling to about $17 in November. Shares
had traded above $80 during the real estate boom in 2005.
"What's going on here has nothing to do with the
fundamentals," Horne said. "The economy in this region is
recovering rapidly. The airport traffic is phenomenal. Things
are going better, but of course we're dealing with some
corporate governance issues as well as a very high profile
fight between the longs and the shorts here."
One issue is compensation. Horne said St. Joe is generous
in pay to executives and board members, while the company is
not producing any cash.
After last week's board meeting, the company implemented a
new compensation policy tied to performance. "It's still very
vague and very discretionary," Horne said.
Berkowitz and Fernandez resigned a week after attending
their first St. Joe board meeting.
"Basically Charlie and I did not have a majority in favor
of reform," Berkowitz told Reuters. "It was Charlie and I and
everybody else said no. We had trouble even calling for a
meeting. We clearly disagree with management on a lot of
questions: for example pay for performance, effective
governance and oversight."
St. Joe said in a statement that Fairholme's statements and
actions were not in the best interest of all St. Joe
shareholders. Berkowitz and Fernandez substantially agreed with
the business plan and approved the exploration of strategic
alternatives, the company said.
Einhorn has also been critical of St. Joe's moves.
"We agree with David on some points," Berkowitz said in the
interview. "We may have a very different view with David on
long-term asset value within the company. But we do agree that
Joe has the wrong business plan, ineffective governance and
needs to stop wasting stockholder money."
A Greenlight Capital spokesman declined to comment.
(Additional reporting by Nadia Damouni, Jennifer Ablan, and
Martha Graybow, editing by Dave Zimmerman and Bernard Orr)