UPDATE, 7:18 AM: ”This is a significant milestone for us and for the future of the company” CEO Tim Armstrong said this morning after his victory over Starboard Value’s Jeffrey Smith at the shareholder meeting in Boston. He called the election of the management-endorsed board candidates “a clear indication” that investors “believe the value of the company will be larger in the future than it is today.” That doesn’t mean the criticism will end. “There’s going to be a noise layer for the business on a go-forward basis because we’re in the media business.” But he intends to be “very careful about costs, very careful about revenues.” Meanwhile, AOL wants to add two members to the board: an exec with experience in the tech-mobile world, and another with financial or technical operating skills. Armstrong says he’d consider the Starboard Value candidates — but it sounded like they shouldn’t hold their breaths. “We have other shareholders who have been putting in nominees,” he says. Also the company has hired exec search firm Spencer Stuart. Armstrong expects to close the process “within the next 12 months.”
The masters of news spin do it without appearing obvious. That’s a lesson AOL could learn based on its glaringly self-serving response to a new report from investor advisory group Glass Lewis in the run-up to a bitter June 14 proxy fight. The firm recommended that AOL shareholders elect Starboard Value’s Jeffrey Smith to the board, but not the other two members of his dissident slate. It’s a clear setback for AOL, which is fighting the hedge fund CEO who controls 5.3% of the voting shares. Glass Lewis says that AOL’s board “would benefit from a fresh perspective”, adding that Smith’s pressure has already led the company to take actions that boosted the stock price — including the $1.1B sale of AOL’s patent portfolio to Microsoft. Glass Lewis disputes AOL’s claim that Smith would upend its strategy and destroy shareholder value. AOL’s attacks on Starboard Value are “indicative of a retrenched board unprepared to substantially alter the status quo or consider alternative strategies in the absence of significant external pressure,” the report says.
AOL and dissident shareholder Jeffrey Smith may be able to give President Obama and Mitt Romney a lesson in negative campaigning in the run-up to a June 14 shareholder vote for eight openings on the Internet company’s board. AOL was livid this weekend after investor advisory service ISS endorsed two of the three members of a slate nominated by Smith, who runs hedge fund Starboard Value. The firm urged AOL investors to support Smith, who controls 5.3% of the company’s shares, and his ally investor Dennis Miller. The dissidents “have made a compelling case that shareholders would benefit from additional directors with both industry knowledge — particularly of the evolving display advertising segment, where the company believes (but the dissident doubts) there is growth potential — and a deep, unconflicted commitment to objective business analysis and capital allocation,” ISS says. Smith says that his slate — which includes Jim Warner of digital marketing advisory firm Third Floor Enterprises — is “firmly committed to working constructively with the other board members to achieve the best possible success for AOL while representing the best interests of all shareholders.” But AOL says it does not believe that the two ISS-supported candidates “have demonstrated a basic understanding of AOL’s business model, nor do we believe that they have a viable plan for AOL other than to break up and liquidate the Company.” AOL adds
UPDATE, 6:35 AM: ”I don’t see a resolution on the horizon” in AOL‘s battle with activist investor Starboard Value, CEO Tim Armstrong told analysts this morning. The hedge fund, which owns 5.3% of AOL shares, is waging a proxy fight as it attacks Armstrong initiatives including his investment in the Patch local news service and acquisition of the Huffington Post. Starboard is challenging the company’s nominated slate of directors with three of its own candidates — including Starboard CEO Jeffrey Smith — for the election that will take place at AOL’s annual meeting June 14. “We feel pretty good about our position in that,” Armstrong says. But he adds that it’s “not helpful to have a lot of noise around our content business” just as AOL enters the upfront ad-buying season. He urged investors not to “mistake that noise for what we’re doing.”