June 14, 2012 / 1:55 PM / 6 years ago

UPDATE 2-AOL shareholders re-elect board, defeat activist

* Activist hedge fund Starboard had nominated three
    * Board still debating how to pay out $1 bln from patent
    * Company seeking two additional directors, wants a sitting
    * Shares fall 5 percent

 (Adds CEO comment, updates shares)	
    By Scott Malone	
    BOSTON, June 14 (Reuters) - AOL Inc shareholders
re-elected the company's eight-member board of directors on
Thursday, handing a defeat to activist hedge fund Starboard
Value, which had sought to unseat three directors.	
    AOL shares slid 5 percent to $25.72, their steepest slide on
the New York Stock Exchange in more than two months.	
    Starboard had aimed to shake up AOL, which is working to
transform itself to an ad-driven media destination as it winds
down its old business of selling dial-up Internet access.	
    Chief Executive Tim Armstrong said the preliminary results
showed shareholders had faith in his strategy, which he said
helped the shares surge roughly 40 percent over the past year,
greatly outpacing the 7.5 percent rise of the tech-heavy Nasdaq
composite index.	
    "It was a referendum on our long-term holders and what they
feel about our strategy," Armstrong, a former Google Inc
 official who took the helm of AOL in 2009 as it unwound
from its disastrous merger with Time Warner Inc, said of
the vote.	
    Company officials cautioned the voting results were
preliminary and said they would confirm the final tally in a
filing with the U.S. Securities and Exchange Commission.	
    The company's hold on the board in part reflected
shareholder relief after AOL inked a deal to sell most of its
patents to Microsoft Corp for $1 billion, a sum that it
intends to disburse to shareholders after the deal closes.	
    "I think the patent sale was a big relief for investors and
paved the way for a little more patience," said Clayton Moran,
an analyst with the Benchmark Company.	
    Armstrong also invited Starboard CEO Jeffrey Smith to
address the crowd, which met at Boston University.	
    "We all agree that AOL is undervalued. We also all agree
that AOL can achieve substantial revenue growth and far more
profitability. The challenge is how to get that accomplished,"
said Smith, whose fund holds a 5.3 percent stake in AOL. "We
hope and expect the newfound energy of the board and management
will continue long after this spotlight fades."	
    Armstrong faced only one shareholder question at the meeting
-- just how AOL planned to pay out that $1 billion, which works
out to a little more than $10 for each of its 93.5 million
shares outstanding.	
    "We have been out soliciting shareholder feedback in terms
of how they would like it returned," Armstrong said, noting that
the company was looking for the most tax-efficient way to
proceed and that in any event it needed the sale to close first.	
    "It would not be unusual to expect it to close soon," he
told reporters after the meeting, held in Boston which is home
to an AOL office and is also nearby Armstrong's hometown of
Littleton, Massachusetts.	
    The company has also decided to add two additional directors
to its board, and hopes to find them within the next year. It is
considering Starboard's nominees -- which included Smith -- but
also soliciting recommendations from other large shareholders
and has hired the executive search firm Spencer Stuart to seek
    "We would really like to have a sitting CEO who hopefully is
in the tech or mobile space," Armstrong said. "The second one is
probably somebody with either deep financial or tech operating
skills and ability."	
    Starboard is the company's fifth-largest shareholder,
according to Thomson Reuters data. It launched a campaign late
last year to shake up the Internet company, including improving
results in its display advertising operation and at the
local-news site Patch.com.	
    Dissident shareholders have been gaining ground in board
elections this year. Dissidents have won at least one seat in 12
contested elections this year, according to data from
Institutional Shareholder Services released prior to Thursday's
 (Additional reporting by Jennifer Saba and Ryan Vlastelica in
New York and Ross Kerber in Boston; Editing by Sofina
Mirza-Reid, Dave Zimmerman)

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