AOL Wins Proxy Contest As Shareholders Re-Elect Board
06/14/2012| 10:41am US/Eastern
--AOL wins proxy fight with Starboard Value
--Shares fall more than 5%
--CEO Armstrong said search for independent board members underway
(adds comments from AOL CEO and share price.)
By William Launder and Jon Kamp
AOL Inc. (>> AOL, Inc.) Thursday won a proxy fight with activist investor Starboard Value, relieving some of the scrutiny on Chief Executive Tim Armstrong's investments in online content businesses like Patch.com and The Huffington Post.
A majority of shareholders at AOL's annual meeting voted to re-elect all eight of AOL's current board members, rather than take on any of the three candidates proposed by activist shareholder Starboard Value, according to a preliminary estimate by AOL. A final count of shareholder votes is expected later Thursday.
The company thanked shareholders for their support and said it plans to respond "to the messages we heard from our investors." AOL added that it has "the right strategy and team" to continue providing value for its shareholders.
AOL shares--up 43% over the past three months--fell 5.4% Thursday to $25.66 as investors's hopes faded that Starboard could force more changes quickly.
Starboard, which owns around 5.3% of AOL's outstanding shares, had nominated Chief Executive Jeffrey Smith and two other candidates as part of ongoing efforts to gain influence over the Internet company's online content businesses and other strategic decisions.
Mr. Smith spoke briefly at the meeting, saying shareholders and management agree that the company is undervalued and can achieve "substantial revenue growth and far more profitability."
But the challenge is how to get there, he said. Mr. Smith credited AOL for making improvements, but also said they are "not enough." He also credited his firm for contributing to AOL's progress.
"AOL is a terrific company with wonderful assets and brands," Mr. Smith said. "The company should be more highly valued."
A Starboard representative wasn't immediatly available for further comment on what the investment fund plans to do next.
Mr. Armstrong said AOL had made progress in its search to find two independent board members, a pledge it previously made amid criticism from Starboard.
The CEO said AOL had considered Starboard's nominees, but the company is focusing its board search elsewhere. AOL is looking at candidates proposed by other shareholders and has hired search firm Spencer Stuart to conduct the search, which it hopes to complete over the next year.
Mr. Armstrong said AOL is looking for candidates with financial and mobile communications experience.
For months, AOL and Starboard have traded blows over AOL's strategy, with Starboard taking particular aim at AOL's network of money-losing local news websites, Patch.com.
Mr. Armstrong has starkly defended his content investments as part of broader efforts to transform AOL into an advertising-revenue driven media company, following its spin-off from Time Warner Inc. (TWX). He says AOL units like Patch, which he founded, need more time to become profitable.
In April, AOL announced a $1.06 billion deal to sell and license its patent portfolio to Microsoft Corp. (>> Microsoft Corporation), a deal that both AOL and Starboard have taken credit for initiating.
Mr. Armstrong said Thursday that the most important task at hand for AOL right now was closing its patent sale to Microsoft. AOL wants to return the proceeds from the sale to investors in the most tax efficient way possible.
Two of the most influential proxy advisory firms, Institutional Shareholder Services and Glass Lewis, had endorsed Mr. Smith as a candidate for the AOL board, but they had mixed views on the other candidates proposed by Starboard.
Write to William Launder at firstname.lastname@example.org and Jon Kamp at email@example.com