By Ilaina Jonas
NEW YORK (Reuters) - Mutual fund manager Bruce Berkowitz resigned from the board of St. Joe Co <JOE.N> on Monday, six weeks after joining it, citing disagreements with other board members at the company where he is the largest shareholder.
The exit of Berkowitz and his colleague Charles Fernandez from the nine-member board is the latest twist for St. Joe, the largest private landholder in northern Florida. While Berkowitz has raised his stake in the company and repeatedly said he would like to buy all of it if he could, hedge fund manager David Einhorn has attacked its aggressive real estate bets and said the shares are overvalued.
Berkowitz and Fernandez, executives at Fairholme Capital Management LLC and Fairholme Funds Inc, were appointed to the board six weeks ago. 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 Exchange Commission.
St. Joe shares were down 2.5 percent, or 66 cents, at $26.04 in afternoon trading on the New York Stock Exchange.
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.
As of Friday, when shares closed at $26.70, the stock was up 57 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," Raymond James analyst Buck 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."
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 in a telephone interview. "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."
Berkowitz said he is not selling St. Joe shares. Fairholme has a 29 percent stake in the Florida Panhandle land owner and developer.
"We're not walking away, and whatever actions we take we're going to take for all shareholders," he said. "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."
Asked if he would stage a proxy fight, Berkowitz had no comment.
St. Joe said in an email 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.
CASH BURN OUT OF CONTROL
Einhorn, of hedge fund Greenlight Capital, is shorting the stock, betting its shares will fall. Einhorn rose to prominence for criticizing Lehman Brothers' accounting methods before the investment bank collapsed.
"We agree with David on some points," Berkowitz said. "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.
One issue is compensation. St. Joe, which has between 110 and 140 employees and board members, spends $21 million to $22 million in cash a year and about another $6 million in non-cash stock compensation, Horne said. "You've got some very well-paid senior executives," he said.
Horne said the company is not cash-flow positive and instead has been burning through cash and likely will continue to do so for a year or two. In the near-term, he said, St. Joe would have to cut employee costs to reduce the amount of cash it is plowing through.
After last week's board meeting, the company implemented a new employee compensation policy tied to performance. "It's still very vague and very discretionary," Horne said.
St. Joe owns more than a half million acres of land. Since the housing bust, it has become a master-planner, getting permits and entitlements for others to build commercial buildings and residential communities.
(Additional reporting by Nadia Damouni, Jennifer Ablan, and Martha Graybow, editing by Dave Zimmerman)