* 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
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
Berkowitz has said the company suffers from corporate
governance issues, with executive compensation one of the
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
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
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
"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