AOL Setback on Board Members

AOL (NYSE: AOL) had a significant setback in its effort to keep dissident directors off its board. Starboard Value, which owns over 5% of the portal company, nominated three directors. Powerful shareholder evaluation firm Institutional Shareholder Services has recommended that stockholders vote for two of these directors — Starboard chief Jeff Smith and Dennis Miller, who was an executive at Spark Capital.

Starboard lost some momentum in its recent efforts to press for board members when AOL sold and licensed just over 800 of its patents to Microsoft (NASDAQ: MSFT) for $1.06 billion. AOL CEO said he would return this money to shareholders, but has not said how.

The patent deal and a slight improvement in AOL’s earnings have pressed the firm’s shares near a 52-week high, trading at $27.11. That is well above the 52-week low of $10.06.

Starboard continues to press the AOL board. The activist firm claims that AOL’s content and display ad businesses lose about $500 million a year. Starboard also says that the tens of millions of dollars that AOL has spent on its Patch local initiative will never show a return.

AOL said its interpretation of the ISS announcement was quite different from Starboard’s:

[It] issued the following statement in response to a report issued by Institutional Shareholder Services Inc. (“ISS”) regarding the Company’s Annual Meeting of Stockholders to be held on June 14, 2012.

While we are pleased that ISS has rejected Starboard’s full slate of nominees and has recommended that stockholders vote FOR six of AOL’s highly qualified and experienced director nominees, we strongly believe that ISS reached the wrong conclusion in failing to recommend that AOL stockholders vote FOR all eight of the Company’s highly qualified director nominees. AOL’s Board of Directors has a proven track record of taking meaningful action to drive shareholder value. We believe AOL has the right strategy and team to successfully execute its plan.

Douglas A. McIntyre