AOL Plans to Buy Back $400 Million of Stock
06/28/2012| 10:15am US/Eastern
--AOL unveiled plans to buy back $400 million worth of its shares
--First step in returning to shareholders all of the proceeds of its $1.1 billion patent sale to Microsoft Corp.
--Modified "Dutch auction" tender offer will include $40 million from the previous $250 million buyback the company announced last August.
AOL Inc. (AOL) unveiled plans to buy back $400 million worth of its shares, billing it as the first step in returning to shareholders all of the proceeds of its $1.1 billion patent sale to Microsoft Corp. (>> Microsoft Corporation).
The so-called modified "Dutch auction" tender offer will include $40 million from the previous $250 million buyback the company announced last August. It begins Thursday and will run through 5 p.m. on Aug. 2. Under the terms of the offer, shareholders will be able to tender some or all of their shares at a price between $27 and $30. AOL closed Wednesday at $27.31 although in early Thursday trading it was up 68 cents to $27.99.
At the company's last earnings call, AOL Chief Executive Tim Armstrong pledged to return all of the proceeds of the patent sale to shareholders. That promise very likely helped him win a proxy fight during the company's annual meeting earlier this month, analysts said. But he did not make that pledge until after the dissident shareholder, Starboard Value LP, publicly demanded it. Starboard nominated three board members, all of whom were defeated.
AOL executives emphasized that the buyback was just the beginning of the return of the patent proceeds, but said it needed to employ several steps and potentially several methods of returning the money to limit the tax impact.
These methods could include tender offer, buyback in the open market, privately negotiated transactions and dividend payments, they said. Chief Financial Officer Artie Minson said the company would continue the full return of both the patent proceeds and the remaining $40 million from the previous buyback program over the course of this year.
"There's a specific method and step process we are going through that will allow us to return all the value from the patent process," Mr. Armstrong said in an interview Thursday morning.
Mr. Armstrong, who has been trying to transform the fading internet access icon into an advertising-supported content giant, said the plan to return patent proceeds was just one aspect of what propelled him to victory earlier this month. He pointed to the operational improvements that contributed to a jump in profits in the first quarter and last year's buyback announcement as other important factors. AOL's share price is up 81% for the year as of Wednesday's close.
"What our shareholders have bought into was our long-term strategy and vision, and I think you saw that in our shareholder vote," Mr. Armstrong said.
Write to Keach Hagey at firstname.lastname@example.org