* AOL's annual shareholder meeting set for Thursday in
* Activist hedge fund Starboard nominating three directors
* Starboard may gain at least one AOL board seat - sources
By Nadia Damouni and Jennifer Saba
June 13 Activist hedge fund Starboard Value may
gain at least one of the three seats it is seeking on AOL Inc's
board during the Internet company's annual shareholder
meeting in Boston on Thursday, two top shareholders said.
Jeffrey Smith, the founder and CEO of Starboard is one of
the nominees up for an AOL board seat, and a person close to the
matter said Smith will be at the shareholder meeting.
Starboard is seeking to replace three of AOL's eight
directors with nominees of its own while AOL is asking investors
to vote to keep its current board.
Starboard maintains that AOL management has failed with its
strategy to double down on transforming itself into a media and
entertainment powerhouse, citing AOL's costly investment in its
network of local news sites called Patch and losses at its
display advertising business.
AOL counters by citing the shareholder value of its
more-than-doubled share price since its August low, its millions
of dollars in cost cuts, and a $1 billion sale of part of its
patent portfolio to Microsoft Corp in which
shareholders will get the full proceeds.
AOL has said it plans to expand its board by two seats after
the shareholder meeting regardless of any outcome.
"Starboard may have an okay shot of one person," said one of
AOL's top shareholders who declined to be named because of the
sensitivity of the matter.
New York-based Starboard in December took a large stake in
AOL - it now holds a little more than 5 percent - and has waged
a hostile public campaign against AOL Chief Executive Tim
Armstrong and his management team.
Behind the scenes, Starboard and Armstrong have been wooing
AOL shareholders for months, quietly laying out their cases for
why their vision for the company is the correct one, said a
second shareholder source.
In addition to Smith, Starboard is nominating Dennis Miller,
a former general partner at Spark Capital who also worked as a
media and studio executive and is pegged as a likely winner
during the meeting on Thursday, the shareholder sources said.
The other Starboard nominee is James Warner, who formerly
worked at digital ad agency Avenue A/ Razorfish and television
networks HBO and CBS Corp.
AOL is asking shareholders to vote for its current slate of
directors: Alberto Ibarguen, CEO of the John S. And James L.
Knight Foundation; James Stengel, the former global marketing
officer of Procter & Gamble Co ; Fredric Reynolds, the
former CFO of CBS; Patricia Mitchell, CEO of the Paley Center
for Media; Susan Lyne, chairman of the Gilt Groupe; Karen
Dykstra, former COO of Plainfield Asset Management; Richard
Dalzell, former senior vice president of Amazon ; and
Armstrong who serves as AOL chairman.
Proxy advisor firms ISS and Glass Lewis & Co recommended
that shareholders vote for some of Starboard's nominees.
"There are a lot of people that want Jeff and Dennis on the
board," said the second shareholder source.
AOL and Starboard declined to comment.
The shareholder sources said that although there is support
for Armstrong and his overall strategy, having activist
representatives on the board will keep the company in check.
One wild-card is AOL's largest shareholder Dodge & Cox,
which holds a 15 percent stake. The investment firm typically
has been in support of management, according to two of the
Dodge & Cox declined to comment.
AOL's shareholder meeting is taking place at 9 a.m (1300
GMT) Thursday morning in Boston. AOL shares closed Wednesday
down 0.4 percent at $27.10.