* Fairholme can raise stake in St. Joe beyond 30 pct
* Fairholme reserves right to find a partner
* Prompts speculation in a strategic shake-up
* St. Joe shares close 7.3 pct higher
(Adds Fairholme's Berkowitz not available for comment)
By Ilaina Jonas
NEW YORK, Jan 12 St. Joe Co (JOE.N) shares
rose 7.3 percent as Fairholme Funds Inc (FAIRX.O), its largest
shareholder, was freed to acquire more stock, prompting
speculation about a strategic shake-up at the Florida land
St. Joe and Fairholme ended a 2009 "standstill" agreement
that capped Fairholme's stake at 30 percent, which included
voting rights, effective Jan. 12, according to a filing with
the U.S. Securities and Exchange Commission. The agreement was
previously to have expired on April 6, 2012.
The company has been the focus of two investors holding
opposite positions. Bruce Berkowitz's Fairholme, a mutual fund,
has been buying shares and holds a 28.93 percent stake. On the
other side is Greenlight Capital hedge fund manager David
Einhorn, who is shorting the stock, betting its price will
Einhorn, who in early 2008 made a prescient call on Lehman
Brothers' accounting troubles before the company collapsed,
said in October he believes St. Joe needs to take "substantial
impairments" and accounting writedowns on many of its
During the last two weeks of 2010, short interest in St.
Joe rose to 28 percent of the float shares, up from 25.4
percent, according to the latest reporting period.
In a separate filing with the SEC, Fairholme reserved the
right to find a partner or other shareholder to recommend
alternatives to increase shareholder value.
St. Joe shares closed up $1.71, at $25 on the New York
Stock Exchange, where they were among the top percentage
Funds of BlackRock Income Trust Inc (BKT.N) recently have
raised their collective stakes in St. Joe to 12.59 percent.
JMP Securities analyst Jim Wilson said Fairholme could sway
St. Joe to go private with the help of a private equity firm or
it could merge with a private landholder in exchange for
"I would think they would go out and look at other land
companies or other land acquisition opportunities," Wilson
said. That would allow St. Joe to expand outside of Florida.
Berkowitz was not available for comment on Wednesday, a
St. Joe is in the master-planning business, planning and
getting the necessary permits and zoning for others to build
homes or commercial buildings on its land. It owns more than a
half million acres in the Florida Panhandle, an area hard hit
by the U.S. housing downturn.
Fairholme can now increase its stake, although those shares
will not have voting rights, Keefe, Bruyette & Woods analyst
Sheila McGrath said.
"Once you have 30 percent, it's still a dominant part of
the vote," she said.
St. Joe advised shareholders on Monday the SEC recently
launched an informal inquiry into its policies relating to the
writedown of the value of its real estate. [ID:nN10293764]
A couple of analysts dismissed the SEC inquiry as "nothing
to fear," as Raymond James analyst Buck Horne said in a note.
The analysts pointed to a similar, but more formal
situation that unfolded with homebuilder KB Home (KBH.N). In
that case, the SEC's formal inquiry into the homebuilder's
impairment process ended with the company announcing the
investigation was completed with the regulator taking no
"We suspect a similar outcome would be likely for St. Joe,
but we would still expect the process to take several months,"
(Reporting by Ilaina Jonas; editing by Tim Dobbyn, Gary