Last week, the investor Bruce Berkowitz of Fairholme Capital was onstage at Columbia University’s annual Investment Management Conference in New York when he got a question about St. Joe Company (JOE), one of the most debated stocks among certain moneyed circles. Ever since noted short seller David Einhorn publicly bashed the small Florida real estate developer last fall, the press and financial blogosphere have gleefully pitted Berkowitz, St. Joe’s largest shareholder, against Einhorn in a battle of super investors.

So it didn’t take long before someone in the Columbia audience asked Berkowitz if Einhorn might be wrong. “I don’t have a lot to disagree with David about,” Berkowitz answered, saying he was a long-term shareholder and since joining the St. Joe board earlier this year, he’s been doing everything he can to boost St. Joe’s value. The moderator quipped, “Assuming you guys have any real power on the board.”

If he didn’t before, Berkowitz may be about to get a lot more. According to a CNBC.com report that was confirmed today by Berkowitz, the fund manager is proposing to overhaul St. Joe’s board. It’s the latest in a string of moves to reverse three years of losses at the sleepy Florida company.

Berkowitz would become chairman of St. Joe under his proposal. His partner Charles Fernandez would assume the vice chairman role. In addition, Fairholme recruited Howard Frank, COO of Carnival Corporation (CCL), and Florida Fish and Wildlife Conservation Commission Chairman Rodney Barreto to join the board. Berkowitz expects to discuss the proposal tomorrow at St. Joe’s scheduled board meeting. A St. Joe spokesman did not immediately return a call Monday.

Berkowitz and Fernandez have been planning changes for weeks and said the St. Joe board had been notified before the news leaked Sunday. The report sent St. Joe shares soaring Monday, up as much as 11% to $30.

The proposed shakeup raises the question, what’s in St. Joe’s future? It’s got 576,000 acres of land in Florida’s panhandle, a large chunk of which is located within 15 miles of the coast, but it’s bled money for the last three years after residential developments stalled during the housing bust. Its balance sheet is debt-free, but the company isn’t generating cash or profits. Berkowitz has said it’s “just sort of dead in the water.”

Among the possibilities, Berkowitz says: “Outsourcing the entire operations of the company, merging with another company, being acquired by another company. Acquiring another company.”

The “possibilities are vast. But before you can do any of this, the first thing you have to do is stop the bleeding,” he says.

Berkowitz declined to answer specific questions about St. Joe’s future projects, citing his role as a director. However, he’s said in the past that outside developers could help rework St. Joe land. And he’s still bullish on the stock. He bought St. Joe shares valuing its land between $3,000 and $4,000 an acre. He thinks some of its beachfront properties will fetch $1 million an acre.

Interestingly, Berkowitz and Fernandez won’t accept compensation for their work on St. Joe’s board, nor will they accept reimbursement for flying from Miami to St. Joe’s west Florida headquarters, until the company is profitable.

Coming up short

As investors cheered the news, those selling St. Joe stock short took a hit. Einhorn, known for his deep research and patience after successfully betting against Allied Capital and Lehman Brothers, among others, in Greenlight Capital’s 15-year history, is fighting some heavy hitters in St. Joe.

Berkowitz’s $22 billion Fairholme Capital owns nearly 30% of the company, and six other institutional investors, including BlackRock (BLK) and T. Rowe Price (TROW), control nearly 40% of its shares. If the board rejects Berkowitz’s proposal to become chairman tomorrow, it’s a safe bet that the proposal would go to a shareholder vote. And with Berkowitz’s investment track record and reputation, it’s also likely that other large St. Joe shareholders would side with his proposal.

Another strike against Einhorn: When he gave his 139-slide presentation on St. Joe in October, arguing that its stock should trade between $7 to $10 instead of $25, Berkowitz was restricted by a standstill agreement he signed with the company. It prevented him from adding to his stake, or from voting Fairholme’s full share position in certain situations, including proposals to sell the company.

Just to show how serious Berkowitz is about St. Joe, which is a relatively small position in Fairholme’s $22 billion portfolio, take a look at the slideshow below. In October he sent a photographer to tour St. Joe’s properties after Einhorn’s speech featured several unsightly photos of St. Joe developments. Even though Berkowitz had toured the properties before, he wanted to see what St. Joe’s residential properties looked like compared to Einhorn’s photos. See for yourself. (And to be clear: all the slides and commentary were compiled by the photographer, not Berkowitz.) Einhorn did not respond to a request for comment.

The news might be heating up. St. Joe’s board is meeting tomorrow, and with the news leaking out that Berkowitz wants to replace almost half them, emotions could fly. Another reason to keep up with one of the hottest stocks around.

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