Activist AOL Shareholder Starboard Suggests Alternative Board Members

11:55 AM PST 02/24/2012 by Georg Szalai
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One of the largest investors in the online company with a stake of about 5.2 percent previously criticized the content strategy of chairman and CEO Tim Armstrong.

NEW YORK - Activist AOL shareholder Starboard Value on Friday made good on a promise to suggest some of its own candidates for the online company's board.

One of the largest AOL shareholders, the investment firm, which previously criticized the content strategy of chairman and CEO Tim Armstrong, said it currently owns approximately 5.2 percent of AOL shares.

"We appreciate the ongoing dialog we have had with management and certain members of the board over the past two months," it said. "However, we are extremely disappointed that our conversations regarding the issues raised in our letter have stalled. Specifically, we are troubled that the company remains closed-minded to alternative value creation initiatives, and instead appears solely focused on pursuing the status quo."

AOL responded via a statement. "The recent improved earnings results of AOL Inc. highlight the significant progress we are making in executing our strategy to improve AOL’s growth trajectory and create meaningful shareholder value," it said. "We ended 2011 with our best performance as a company in the past five years…Our stock price has acted in kind, appreciating approximately 80 percent from our 2011 low and 20 percent year-­to-­date."

AOL even said it has offered Starboard "an opportunity to help shape the company’s board of directors composition and size. Unfortunately, Starboard Value LP has a singularly focused agenda and rejected this productive path to address their stated concerns and drive increased shareholder value."

A new business opportunity that Starboard highlighted in its latest shot at AOL is intellectual property. "AOL's patent portfolio could produce in excess of $1 billion of licensing income if appropriately harvested and monetized," it said, citing experts.

But AOL said it had already started a process - before Starboard's first communication -  that will help it "realize the value of certain non-­strategic patents."

In a letter to the AOL board, Starboard suggested its co-founder and CEO Jeffrey Smith and Dennis Miller, a strategic advisor to Lionsgate and former general partner at Spark Capital, as two of its five board candidates. The others are Steven Fink, a private investor who is the former CEO of Lawrence Investments, a venture that owns and manages all of Oracle boss Larry Ellison's non-Oracle investments, James Warner, principal of Third Floor Enterprises, an advisory firm specializing in digital marketing and media, and Ronald Epstein, CEO of Epicenter IP Group, which helps patent owners to obtain maximum value for their intellectual property.

"We do not currently intend to seek to replace a majority of the board," Starboard said. "However, we do believe significant change to the composition of the board is warranted given the qualifications of our nominees and the long-term underperformance of AOL. We remain prepared to engage in constructive dialog with the Board to reach a mutually agreeable resolution. However, if an agreement is not reached, we are fully prepared to solicit the support of our fellow shareholders to elect a new slate of directors at the 2012 Annual Meeting who are committed to representing the best interests of all AOL shareholders."

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

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