* Top shareholder Berkowitz seeks to replace board
* Director slate includes Berkowitz and allies
* Search firm hired to find other director candidates
* St. Joe shares up 1.5 pct (Adds Greenlight response, shareholder concentration, byline, updates stock price)
By Martha Graybow and Ilaina Jonas
NEW YORK, Feb 16 Mutual fund manager Bruce Berkowitz on Wednesday stepped up his battle with St. Joe Co (JOE.N), laying out a plan to replace the board of directors of the Florida land company where he is the largest shareholder.
The fight for control comes as St. Joe, owner of more than a half-million acres in one of the hardest-hit U.S. real estate markets, is considering putting itself up for sale, among other options.
Berkowitz had championed St. Joe even as another prominent investor had attacked it. But he quit the board on Monday, just six weeks after joining, saying the panel was too entrenched.
"When we saw problems at St. Joe, we tried to make constructive changes within the board structure," Berkowitz's Fairholme Funds Inc said in a letter to shareholders on Wednesday. "We ultimately came to the conclusion that this was not possible."
Berkowitz has said the company suffers from corporate governance issues, with executive compensation one of the problems.
St. Joe's ownership is highly concentrated, with just four money managers controlling about 71 percent of the company's shares. This could make a proxy battle easier for Berkowitz.
Fairholme holds a 28.9 percent stake. BlackRock Inc (BLK.N) has 17.7 percent, Janus Capital Management LLC has 13.2 percent, and T. Rowe Price Associates Inc has 11.2 percent, according to records filed this week with the U.S. Securities and Exchange Commission.
As of Wednesday afternoon, St. Joe had not responded to requests for comment.
Late on Tuesday, St. Joe adopted what it called a shareholder rights plan to deter any hostile takeover attempt. It said the plan would allow the company to conduct an orderly review of its alternatives, which also include a revised business plan, partnerships and asset sales.
St. Joe is a relatively small company, with a stock market value of about $2.4 billion, but it has been the focus of a lot of recent scrutiny. Its shares traded above $80 at the height of the real estate bubble in 2005 and sank as low as $14.54 in March 2009. On Wednesday the shares were at $26.89, up 1.5 percent.
In October, famed hedge fund manager David Einhorn gave a detailed presentation at an investment conference arguing that St. Joe's real estate bets were wildly aggressive and the stock was overvalued, triggering a nearly 10 percent one-day drop in the shares. Einhorn, of Greenlight Capital, has been selling the stock short, a bet that the shares would fall
In an emailed statement on Wednesday, a Greenlight spokesman said the current St. Joe stock price overvalues the company's vast holdings of undeveloped rural land. St. Joe should be trading in the single digits, Greenlight said.
"We do not believe cutting some executive compensation expenses or installing a new management team would bridge that gap," a Greenlight spokesman said in the statement.
Berkowitz -- a top-ranked mutual fund manager -- has repeatedly said he would buy the company if he could, arguing the stock was a bargain and that St. Joe's land could be fertile ground for lucrative resorts.
Berkowitz and another Fairholme executive, Charles Fernandez, joined the St. Joe board in January, but the honeymoon did not last long. They quit six weeks later, attacking the company's compensation and corporate governance practices.
Berkowitz and Fernandez are now seeking to rejoin the board, and they want to install two allies on the panel -- former Florida Governor Charlie Crist and Carnival Corp (CCL.N) Chief Operating Officer Howard Frank.
Fairholme hired executive search firm Spencer Stuart and said it was canvassing other shareholders to find more board candidates.
"This ... process is necessary to prevent the incumbent board and management from burning more of your money in order to protect their positions," Berkowitz said in an SEC filing.
Late on Tuesday, St. Joe said its rights plan enables it to explore financial and strategic alternatives. The company has retained Morgan Stanley (MS.N) as financial adviser.
The rights will be exercisable if a person or group acquires 10 percent or more of the company's common stock.
The rights also will be exercisable if a person or group that already owns 10 percent or more of the company's common stock, without board approval, acquires any additional shares, St. Joe said.
The company started as a rural landowner in the Florida Panhandle in the 1930s. It shifted focus from timber assets to beachfront land development in the 1980s. It stepped up its housing development during the boom but has since switched to becoming a master planner, designing and getting the necessary permits for others to build. (Additional reporting by Jennifer Ablan, and Sakthi Prasad and Bijoy Koyitty in Bangalore; editing by Dave Zimmerman and John Wallace)