Fairholme Funds Love Letter To St. Joe Co. Board: Get Out With Help From Spencer Stuart

Fairholme Funds has made several attempts to take control of the board of directors of St Joe Co.  (NYSE: JOE). The Florida real estate company has done badly for the last two years and with the depressed prices in the region, it is hard to figure how the firm could do better.

St Joe’s troubles have not dissuaded Fairholme Funds. In a 13D filed with the SEC today, Bruce Berkowitz, the Fairholme president, wrote St. Joe shareholders

Spencer Stuart has been retained by Fairholme to find new management–an unusually aggressive move for a headhunter

Fellow Shareholders:

 
The Fairholme Fund is starting a shareholder process to replace the existing board of St Joe. This was not a decision made lightly. We are not activists. We always try to support the boards, management and shareholders of our portfolio companies. We like when everyone wins. When we saw problems at St. Joe, we tried to make constructive changes within the board structure. We ultimately came to the conclusion that this was not possible.We believe in the following fundamental concepts:

• St. Joe belongs to its shareholders, not its board or management
• St. Joe management plans must reflect business reality
• St. Joe management must stop selling cheap to fund wasteful spending
• St. Joe management must be open, transparent and accountable
• St. Joe management must feel the pain and joy of their constituents
• St. Joe directors must lead by example
Who should be on the St. Joe board? It is your company as much as The Fairholme Fund’s roughly 500,000 shareholders. Let’s all decide.

Today we begin a director search in which every shareholder of St. Joe has the opportunity to be heard. We have retained the executive search firm of Spencer Stuart to oversee a process in which all shareholders can suggest director candidates, and in a few days will be establishing a web site, takebackjoe.com, to help facilitate the process. Spencer Stuart will review shareholder suggestions and make a recommendation to us for the best board of directors that reflects shareholder views. Charlie and I have submitted our own names and agreed to serve without compensation. In addition, we have proposed Governor Charlie Christ and Howard Frank, Vice Chair and COO of Carnival Corp, one of the world’s largest vacation companies. We anticipate filling the remaining spots on either a seven- or nine-member board with names proposed by our fellow shareholders and Spencer Stuart.

Under Florida law, a majority can act by written consent to remove the existing board and elect a new one without a shareholder meeting. However, because of roadblocks set up by St Joe directors just last week – which require us to name director nominees at the commencement of the removal process – we have decided to act to replace the existing board with the four nominees named above while the shareholder-driven search process working with Spencer Stuart is underway. If we win, these four new directors will add the individuals chosen through Spencer Stuart. This two step process is necessary to prevent the incumbent board and management from burning more of your money in order to protect their positions.

We will not seek to recover any of the cost of Spencer Stuart or the solicitation from St. Joe. We are not looking to spend a dime of the company’s money. This is a matter of principle for us, and our return will be reflected in a more valuable St. Joe.

More information will be published when available. While a written consent will be the simplest way to change the board, it may become appropriate to hold a special meeting of shareholders. Of course, Joe’s current directors can immediately step down and appoint our slate in order to save us all much time and expense.Please visit the website when it is up in a few days and let Spencer Stuart know your views about director candidates. We will issue a news release when the site is active.

We’ve lost enough. Let’s take back Joe.

 
Fairholme Funds, Inc., on behalf of its series The Fairholme Fund

 

/s/ Bruce Berkowitz    Bruce Berkowitz   President

 

Douglas A. McIntyre