|AOL Shares Soar on Patent Deal With Microsoft |
New York Times
April 9, 2012, 12:20
Will AOL’s patent deal appease shareholders?
On Monday, the Internet company announced that it would sell a trove of patents to Microsoft for nearly $1.1 billion. Investors cheered the news, sending shares of AOL soaring more than 45 percent.
But it remains to be seen whether one of the company’s largest shareholders, Starboard Value, will find the deal sufficient.
Starboard, a money manager that owns 4.61 percent of AOL’s stock, has been vocally pushing for change at the struggling Internet company for months. In a February letter to AOL’s board, Starboard called for the company to take action and “unlock value,” in part highlighting a portfolio of more than 800 patents covering areas of e-commerce and search advertising.
“AOL owns a robust portfolio of extremely valuable and foundational intellectual property that has gone unrecognized and underutilized,” Starboard wrote in the letter.
Since its founding in 2011, Starboard has been an aggressive activist. It wants to remake the board of Progress Software. And last year it urged the technology company DSP Group to hire an investment bank and “explore strategic alternatives.”
AOL has been one of Starboard’s biggest targets. Late last year, the firm wrote a public letter to AOL’s chief executive, Tim Armstrong, and the board. In it, Starboard took aim at the company’s strategy and “investments into money-losing growth initiatives like Patch,” a provider of hyperlocal content.
“While we understand and appreciate that the Company’s Access business is in secular decline, we do not believe this serves as justification for continuing to pursue a money-losing growth strategy in the Display business that has repeatedly failed to meet expectations and drained corporate resources,” Starboard Value’s chief, Jeffrey C. Smith, said in a statement.
While Starboard said AOL had held discussions with the money manager about the issues, the talks eventually stalled, according to the investor. And in February, Starboard moved to overhaul the board, proposing five nominees.
“We are troubled that the Company remains closed-minded to alternative value creation initiatives, and instead appears solely focused on pursuing the status quo,” Starboard said in a letter to the board.
Now, one of Starboard’s demands appears to have been met. As part of the deal with Microsoft, AOL is selling a portfolio of 800 patents.
“The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value,” Mr. Armstrong, AOL’s chairman and chief executive, said in a statement.
So far, Starboard Value isn’t commenting on the AOL deal.