Market Overview

Intrigue Looming Large At St. Joe (JOE)


Bruce Berkowitz has definitively created a name for himself over the years as one of the world's brightest investors. Berkowitz is the founder and Managing Partner of the Fairholme Fund, which is a top-flight mutual fund which was founded in 1999. The $19 billion investment vehicle has returned 12.9% annually since 2000. Fairholme is the largest shareholder in real estate development company St. Joe (NYSE: JOE), which is under attack from short-sellers. St. Joe has vast holdings of raw land in Florida, in addition to other real estate assets and businesses. Since Fairholme bought a 28.88 percent stake in St. Joe, Berkowitz has made it a priority to oust management and top executives of the company including CEO Britt Greene. He took control of the board as chairman, and named Fairholme's President, Charles Fernandez, vice chairman. Former Florida Governor Charlie Crist and Carnival Corp. Vice Chairman Howard Frank are also directors. Furthermore, Berkowitz brought in a new chief operating officer, Park Brady. The investor has lost some fans with this move.

Sheila McGrath, an analyst at investment firm Keefe, Bruyette & Woods, says “we are disappointed at the departure of CEO Britt Greene.” The analyst had rated the stock at “Outperform” before the Fairholme board takeover, with a target price of $33 a share.  Berkowitz will need to convince shareholders that St. Joe can only be heading for better times after the poor performance thus far, with the shares falling 19% in the last year.

It could make sense from Berkowitz's perspective to buy St. Joe outright.  Could he be planning a quiet takeover at the moment? He presently holds 28.88% of the outstanding shares while Fidelity has reported a stake equal to 11.44%.  This combined stake of 40.32% could definitely create some more changes at the company. It also has to be considered that T Rowe Price holds 11.26% and Janus Capital controls 10.96%. These heavy hitters could be planning something big for the near future.

Another factor to consider is that 19.27% of JOE's float was sold short as of 4/8/2011. The main catalyst for the bearish bets against JOE was a presentation put on by prominent hedge fund manager David Einhorn in October. Einhorn's Greenlight Capital is short JOE. The high short interest, however, could backfire on the bears. Good news or more buying by Fairholme, or a takeover bid, could force the shorts to cover their positions by purchasing stock, thus driving the price up. One thing is certain: Investors should prepare for more intrigue at St. Joe going forward.

Posted-In: Analyst Color Long Ideas News Short Ideas Hedge Funds Movers & Shakers Management Analyst Ratings


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