Will AOL Shareholders Vote for MAJOR Changes?

AOL Inc (NYSE:AOL) is at a crossroads. At its Thursday meeting shareholders will decide whether to continue their support for the existing management or to support a vanguard of change by appointing three nominees of activist fund Starboard Value to AOL’s board.

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To give credit where credit is due, the existing management has delivered profit beats for three straight quarters and AOL’s stock has risen 40 percent over the last year, easily outperforming the Nasdaq’s 7.5 percent rise in the same period. The management also pushed through a $1 billion sale of patents to Microsoft (NASDAQ:MSFT) and the proceeds may end with shareholders, though Starboard also claims credit for the latter achievement.

Starboard, which holds a 5.3 percent stake in AOL, is unhappy with the running of the company and has been gunning for a shakeup that could improve profitability across its display advertising business and also of Patch.com, a local news site, with overall better returns for shareholders. Starboard has three nominees up for election to AOL’s board, and said last week: “Despite our continuous effort to engage constructively with AOL to avoid this election contest, management and the Board have remained steadfastly committed to pursuing the status quo.”

AOL’s management apprehends that Starboard Chief Executive Jeffrey Smith’s real agenda is to engineer a liquidation of the company. In vehement opposition to Starboard’s move, AOL Chief Executive says, “Putting somebody on our board who has been out screaming that our strategy doesn’t work overall, as a personal investor, (is a) really bad idea.”

Proxy advisory firms Glass Lewis and Institutional Shareholder Services are not buying that argument, though, and have backed one or more of Starboard’s nominees for election.

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