By Jennifer Saba
NEW YORK Jan 15 AOL Inc is handing
majority ownership of Patch, a money-losing network of local
news websites, to New York investment firm and turnaround
specialist Hale Global in a joint venture announced by the
companies on Wednesday.
AOL will transfer Patch to a new limited liability company
run by Hale Global. AOL will retain a minority interest.
Terms of the deal were not disclosed, but AOL said it was
not financially material.
Hale Global is a 13-year-old firm that specializes in
turning around online media, mobile and advertising companies.
The partnership is the latest chapter in the history of
Patch, a network of more than 900 websites covering events and
news in communities such as Montclair, New Jersey and Malibu,
California that AOL Chief Executive Tim Armstrong helped start.
Investors and analysts have long urged AOL to stop pouring
funds - so far totaling hundreds of millions of dollars - into
Patch with little return.
The costly project was one reason that activist hedge fund
Starboard Value took a position in AOL and tried to win seats on
the board in an ultimately unsuccessful proxy battle.
"AOL has delivered on our commitment to our investors and
put Patch in a position to be successful," Armstrong wrote in a
memo to employees obtained by Reuters.
Armstrong had promised that it would become profitable in
2013. To reach that goal Patch slashed the staff of 1,000 by
half late last summer and launched a search for either a partner
or a buyer.
Patch was founded in 2007 and Armstrong was an early
investor. Two years later, AOL bought the group of community
websites for about $10 million, according to reports at the
time. Armstrong recused himself from the Patch purchase and took
AOL stock in return for the seed money.
Armstrong hoped that Patch would be one of the cornerstones
in AOL's transformation into a media and entertainment
destination, capitalizing on the woes of a retrenching daily
newspaper industry that has been cutting back on local coverage.
The idea was also to grab some of the billions of dollars that
go toward local advertising.
Local advertising spending in the Unites States is expected
to reach $107 billion, according to research firm Borrell
Associates, while online local ad spend is forecast to hit $34
Still, those dollars are elusive because getting local
businesses to advertise requires a large sales force with
community knowledge, often an expensive proposition.
It was unclear how Hale Global plans to structure Patch and
whether there will be further layoffs.
Shares of AOL closed down 1.2 percent at $47.25 on
Wednesday, after hitting an all-time high on Tuesday.