St. Joe Explores Options With Stock Trading at 3x Book Value ($JOE)

Florida homebuilder St. Joe ($JOE), which is 30% owned by Bruce Berkowitz's Fairholme Fund (FAIRX) and trading at 3x book value, is exploring strategic alternatives with Morgan Stanley "to enhance shareholder value". Berkowitz and Charles M. Fernandez (President of Fairholme) are on the board of directors. From the press release:
WaterSound, FL - February 8, 2011 - The St. Joe Company (NYSE:JOE) today announced that its Board of Directors has unanimously decided to explore financial and strategic alternatives to enhance shareholder value.

The Board intends to consider the full range of available options including a revised business plan, operating partnerships, joint ventures, strategic alliances, asset sales, strategic acquisitions and a merger or sale of the Company. The Board of Directors has retained Morgan Stanley & Co. Incorporated to assist it in the evaluation of these alternatives. The Company noted that there can be no assurance that the exploration of strategic alternatives will result in any transaction.

Britt Greene, St. Joe's President and CEO, said, "We have engaged Morgan Stanley to undertake a comprehensive and thorough review of all available alternatives, and our Board and management are committed to taking the appropriate and necessary actions to enhance value for St. Joe shareholders."

David Einhorn, who runs Greenlight Capital, released a public research report explaining how $JOE was too expensive for a buyout and worth $7-$10 a share. He is (or was) currently short JOE shares. Here was his response to the press release via Reuters:
"With the company trading at more than three times its value, it is easy to see why the Board wants to sell, but hard to fathom why anyone would buy. The lack of cash flow creates a particular challenge for any financial buyer," a spokesman for Einhorn's Greenlight Capital said in an e-mailed statement on Tuesday."

With 27 million shares short on January 15 (up from 25 million), that was 66% of the float.  There was speculation that Bruce Berkowitz was planning to buy more stock, or the whole company, which would squeeze the shorts. JOE had a nice run since December 2010 after Einhorn released his report in October. It will be interesting to see how JOE unlocks value with shares already trading at 3x NAV, in the midst of a significantly stressed real estate environment. Einhorn also believes St. Joe needs to take a significant impairment charge on their land. The SEC is even involved now.

Berkowitz said he bought St. Joe at "swamp land" prices, sees the new airport as a catalyst, and believes there are "decades of work to be done," making it attractive to a builder.

St Joe Stock Chart by YCharts

$JOE traded at 12.26x book value in June 2005, around the top of the real estate bubble, and hit a low of 1.58x book in March 2009 (the market bottom). After the 7% fall today on the news (traders wanted a buyout/Raymond James downgrade), JOE's P/B stood at 2.87 and the stock closed at $26.95.  Check out this chart, courtesy of, of JOE's Price/Book ratio and shareholders equity since March 2001. FYI: JOE offered 17,145,000 shares to the public at $35/share in February 2008 to pay down $580 million in debt (press release). So, St. Joe doesn't have to worry about debt, they need to find buyers of their illiquid land at 12x book (873M x 12 = 10 billion or $113 per share)! Can you make it happen Bruce? As of 9/30/2010 JOE had $760M in property, plant and equipment and $222M in cash (yahoo finance balance sheet).

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