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AOL's Tim Armstrong Survives Proxy Challenge From Activist Hedge Fund


Shareholders are keeping Armstrong and company despite massive losses from Patch.

MINYANVILLE ORIGINAL AOL (AOL) won a proxy fight against activist shareholders today. Starboard Value, a hedge fund that owns 5.3% of AOL's stock, challenged CEO Tim Armstrong for the company's investments in, a network of 863 local news websites, and the Huffington Post.

The shareholders' support of Armstrong and company might have something to do with the stock's breakout performance this year. Since the start of this year, AOL is up nearly 70%, mostly thanks to a $1.06 billion patent sale to Microsoft (MSFT), which later passed some of them on to patent-poor Facebook (FB).

Today, however, the stock is trading down 5.87% at $25.51.

The company released this statement today:

On behalf of AOL's Board and management team, we want to thank our stockholders for their strong support throughout this process. Over the past few months, we have met with many of our stockholders and greatly appreciate their feedback as well as their commitment to AOL. We intend to be responsive to the messages we heard from our investors and will continue our plans to pursue adding two new independent directors to the Board, who we believe will add additional expertise and relevant perspectives to further enhance the strength of our Board. Today's outcome reaffirms our strong belief that AOL has the right strategy and team to successfully execute on our plan to continue to deliver enhanced value for all stockholders.

Starboard's pick for CEO, Jeffrey Smith, said that the company isn't doing enough to maximize the value of its assets. The hedge fund had previously criticized the board for its lack of independent directors. AOL considered Starboard's picks, but ultimately decided to look elsewhere for qualified independent board members.

One of the biggest points of contention is the continued investment in Patch. Patch is a money-loser for AOL. According to Starboard's estimations, Patch lost $147 million and only made only $13 million in revenue. The site failed to deliver on the promise of selling display advertising to local businesses. Most mom-and-pop shops have little, if anything, in the way of an advertising budget.

Even for local businesses, Google's (GOOG) bang for the buck is more apparent, since advertisers only pay when someone clicks on the ad, rather than the billboard-like model of banner ads. Google's ads are also vastly cheaper. 70% of Patch advertisers decide against renewing their sponsorship.

Traffic to Patch sites has grown substantially, however, and AOL is doubling down, insisting that the site needs more time to become profitable. Last month, Patch drew a record 11.7 million users. Visits per user increased by 12% on a monthly basis and revenue rose 17%.

Twitter: @vincent_trivett
No positions in stocks mentioned.
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