AOL Inc. fended off an attempt by a dissident investor to unseat several of its board members, according to preliminary results of a proxy vote revealed Thursday at its annual shareholder meeting in Boston.
The company said all eight of its existing board members were reelected by shareholders despite an aggressive effort by Starboard Value LP, a New York investment advisory firm and one of AOL’s biggest shareholders, to win seats on the company’s board for three of its own candidates.
AOL chief executive Tim Armstrong called the vote a validation of AOL’s current strategy. “AOL is on a very fast recovery path,” he said. “I believe that our strategy is bold and fits into where the Internet is going.”
Starboard, which owns 5.3 percent of AOL, has criticized the company’s high-profile investments in a portfolio of digital media sites. The sites are key elements of Armstrong’s efforts to revive the iconic Web brand, once one of the country’s biggest providers of Internet service.
Debuting as America Online in 1991, AOL merged with Time Warner Inc. nine years later in a bid to build the world’s biggest Web content delivery system. The combined company failed to meet expectations and led to shareholder lawsuits and a regulatory investigation. On Thursday Armstrong called it “the worst merger in corporate history.”
‘AOL is on a very fast recovery path. I believe that our strategy is bold and fits into where the Internet is going.’
AOL was spun off as an independent company in 2009 and has since invested heavily in Internet publishing. It bought the popular news website Huffington Post from founder Arianna Huffington in 2011 for $315 million and has spent about $300 million to expand Patch, the company’s network of about 869 hyperlocal news sites. AOL has more than 70 Patch sites in Massachusetts.
The company is still in transition from its divorce with Time Warner, said Tom Forte, a financial analyst at Telsey Advisory Group in New York. “We think they have positioned themselves to turn around the business,” he said. “This is a very different company today.”
Armstrong told AOL shareholders that the company is building up its online brands, which include the technology blog TechCrunch and the online service MapQuest, and will focus on boosting ad sales on its sites. AOL’s ad revenue climbed to $330 million in the first quarter, a 5 percent increase over the first three months of 2011, although its consolidated revenues declined 4 percent in the same period.
“Their advertising is growing, but they are losing share in the online display advertising market,” said Peter Stabler, a digital media analyst at Wells Fargo in San Francisco. Still, he said, the company is unlikely to back away from its current strategy or its commitment to Patch, despite Wall Street skepticism about its business model.
The challenge for Patch is to bring local advertisers onto its network of sites and continue building traffic, according to Stabler. “This thing is dead in the water if traffic doesn’t grow,” he said.
Starboard has said AOL is losing more than $500 million a year building up a roster of sites that rely on display ad revenues. “We do not believe Patch is a viable business,” it said in May, in a presentation to AOL investors.
AOL does not expect Patch to be profitable until 2014, Starboard said. It wants the company to consider closing down or restructuring Patch to make it profitable sooner, and called on AOL to seek other means to grow revenues, such as selling some of its real estate holdings, according to its May statement.
Speaking to about 50 shareholders, employees, and directors gathered in a conference room at Boston University’s School of Management on Thursday, Jeffrey Smith, chief executive of Starboard, praised AOL’s decision in April to sell 800 patents to Microsoft Corp. for $1.06 billion. The sale helped boost AOL’s stock 43 percent to $26.40, its biggest stock leap in two years. AOL’s stock closed Thursday at $25.57, down 5.6 percent.
While acknowledging that AOL has shown improvements, Smith told the investors, “I think we all agree it’s not enough.”
Over the past several years, AOL has rotated the location of its annual meeting among cities where it has local offices. The company has a team of about 50 sales and marketing employees in Boston, and Armstrong, who has been AOL’s chief executive since 2009, is from Littleton.
Boston University was chosen as the venue for this year’s meeting because the school provided an intimate gathering space for shareholders, an AOL spokeswoman said.