Saint Joe and the Dragon (Fairholme’s Bruce Berkowitz)

February 16th, 2011
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Contributed by: Michael R. Levin, The Activist Investor
Nothing like a lusty, complicated, passionate fight for the soul of a company to pique our interest, right? Spring tends to bring this sort of thing, the more complicated the better. This one has just about everything, and should hold our attention for awhile.

Unlike Saint George, who in lore slays the dragon, St. Joe has a good chance of losing this one.

The setup: Bruce Berkowitz, fabulously successful proprietor of Fairholme Capital, has owned about 30% of St. Joe Company (NYSE: JOE), the Florida real estate developer, for years. David Einhorn, another fabulously successful fund proprietor, of Greenlight Capital, has shorted St. Joe for years.
• David disagreed publicly with Bruce last year in a notable manifesto about the (dismal) prospects for St. Joe.
• Bruce disagreed, nicely but vigorously, with David, and upped his support for St. Joe by buying more shares.
• St. Joe rewarded Bruce for his support with seats on the BoD for him and his partner, Charlie Fernandez. They all terminate a previous standstill agreement.
• Bruce and Charlie propose some candidates for the BoD. Apparently, fellow directors think them uppity, and decline to consider them.
• Six weeks into their terms, Bruce and Charlie resign.
• Yesterday, Bruce and Charlie announce that they want to replace the BoD.

How Bruce and Charlie will go about this merits your attention, since it has the potential to become a sort of academic case study in activist investing. At this point it has just about everything one could want:
• Bruce and Charlie say they will replace the BoD through a consent solicitation.
• They may need, instead, to call a special meeting of shareholders, because St. Joe changed the bylaws to require certain types of advance notice of nominations through a consent solicitation.
• St. Joe implemented a poison pill right after Bruce and Charlie said they would replace the BoD.
• The SEC has opened an investigation of St. Joe's impairment accounting, probably based on David's analysis.
• St. Joe has retained Morgan Stanley to "explore financial and strategic alternatives".

Wow. Still early to handicap how this might work out, although it's worth noting that the top few investors control a majority of shares. With a persuasive case, Bruce and Charlie can likely do what they want with the BoD.
For Detailed Investor Profiles on these Investors, click below:
Greenlight Capital
Fairholme Capital Management
Related People: Bruce Berkowitz; Bruce Gutkin; Charlie Fernandez; David Einhorn; Harry Brandler; James Lin; Jeffrey A. Keswin*; Nelson Heumann; Vinit Sethi
Related Entities: East Lane LLC; Fairholme Asset Allocation Fund; Fairholme Focused Fund; Fairholme Partners LP; Fairholme Ventures; DME Advisors LP; Fairholme Fund; Greenlight Capital Inc; Greenlight Masters LLC; Greenlight Private Equity Partners
Related Article Tags: Shareholder Activists, Corporate Raiders and Proxy Battles; Hedge Fund Resources and Featured Partner News

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