Starboard's Reaction to Recent Patent Agreement Confirms its
Self-interest and Short-sightedness
Company’s Efforts to Engage with Starboard Have Been Consistently
Rebuffed
Urges Stockholders to Vote FOR the Board’s Nominees on the WHITE
Proxy Card Today
NEW YORK--(BUSINESS WIRE)--May. 3, 2012--
AOL, Inc. (NYSE: AOL) today released a letter to stockholders in
connection with the Company’s 2012 Annual Meeting of Stockholders
scheduled for June 14, 2012.
The following is the text of the letter from Tim Armstrong, AOL’s
Chairman and CEO
May 2, 2012
Dear Fellow Stockholder:
At our Annual Meeting of Stockholders on June 14, 2012, you will have
the opportunity to make an important decision regarding the future of
your investment in the Company. At the meeting, Starboard Value L.P.
(“Starboard”), an AOL stockholder, is seeking to elect its own slate of
three Director candidates to your Board of Directors (the “Board”).
Starboard is an “activist” hedge fund that became an AOL stockholder a
short time ago. Despite the fact that AOL’s stock price has increased by
more than 100% since Starboard first began to acquire its position,
Starboard continues to advocate a short-sighted approach that would
result in the effective liquidation of the Company by significantly
weakening its product offering and attractiveness to advertisers, and
has never offered any viable strategy or vision for the future of the
Company. In what we are convinced is a blatant attempt to force that
misguided approach upon AOL, Starboard has issued a barrage of
materially false and misleading statements targeted at AOL’s
stockholders as part of a campaign to elect their handpicked directors
to AOL’s Board.
Starboard, and in particular its principal, Mr. Jeffrey Smith, have
rebuffed AOL’s numerous efforts to avoid a destructive and expensive
proxy fight. We believe that Starboard’s misleading proxy campaign not
only prevents stockholders from making an informed vote at the Annual
Meeting, but has created a destructive atmosphere for AOL and the
long-term interests of all of its stockholders. It has become clear to
us that Starboard’s and Mr. Smith’s increasingly vitriolic campaign to
secure board representation and foist Starboard’s misguided strategy on
AOL is not designed to benefit all of AOL’s stockholders generally, but
to establish Mr. Smith’s bona fides as an “activist” investor and to
garner him the publicity and prestige of a board seat at AOL.
Starboard’s clearly value-destructive and self-interested presence has
not gone unnoticed. In an April 13, 2012 article titled Starboard’s
activism turning off some AOL investors, Reuters reported that other
large AOL stockholders have become increasingly frustrated with
Starboard’s dissident slate and its escalating hostile tactics. As one
stockholder was quoted as saying: “Starboard is proving to be a real
distraction and they are potentially destroying value to some degree.”
AOL’S EFFORTS TO ENGAGE WITH STARBOARD AND AVOID A DAMAGING PROXY
FIGHT HAVE BEEN CONSISTENTLY REBUFFED
Starboard is not a long-term AOL stockholder. Rather, it began to
accumulate AOL stock beginning in September 2011 and now purports to
hold 5.3% of AOL’s outstanding shares. On December 21, 2011, Starboard
sent and publicly disclosed a letter to the Board, expressing the view
that AOL’s shares were undervalued. Rather than presenting a reasoned
strategy for driving stockholder value, Starboard’s letter simply
criticized in conclusory fashion AOL’s long-term strategy and
investments in content-based assets. Starboard claimed that the market
placed little-to-no value on AOL’s media assets, purportedly as a result
of continued operating losses in the Company’s supposed “Display
business.”
Specifically, Starboard conceded that AOL’s access and search operations
were highly profitable, but claimed that AOL’s supposed “Display
business” would lose over $500 million in EBITDA in calendar year 2011,
with $150 million of that amount purportedly driven by losses in AOL’s
Patch operations. In fact, AOL has no “Display business” segment and
Starboard’s creation of a profit/loss figure for the so-called “Display
business” is a fiction, which we believe is designed to mislead AOL’s
stockholders concerning the value of AOL’s content-based assets. AOL
does indeed offer a full suite of display advertising solutions for its
advertiser partners, including the innovative Project Devil, and these
offerings are a part of the monetization of the extensive content that
AOL and its brands produce. AOL does not break out profits for any such
“Display business” or any other individual product line or service
offering, nor is the Company managed in such a manner.
After receiving Starboard’s December 21, 2011 letter, AOL made several
attempts to open a constructive dialogue with Starboard and to correct
certain misconceptions that Starboard appeared to have about AOL’s
business. On January 13, 2012, representatives of AOL, including Lead
Independent Director Fredric Reynolds, CEO Tim Armstrong and CFO Artie
Minson, met with Mr. Smith to discuss AOL’s business and strategy.
During this meeting, the AOL representatives highlighted what we
believed were a number of erroneous and misleading statements in
Starboard’s December 21, 2011 letter, the most egregious of which was
Starboard’s claim that AOL would lose over $500 million in its so-called
“Display business” in 2011. As AOL’s representatives explained to Mr.
Smith, that assertion was incorrect and based upon a misunderstanding of
AOL’s business, since Starboard’s assumptions erroneously failed to
allocate any of the supposed “Display business’s” costs to other parts
of AOL’s business, notwithstanding that AOL’s content-based assets drive
substantial revenue for those units. For example, while the Company’s
access and search operations are, viewed in isolation, high margin,
investments in content-based assets help to sustain access subscribers
and to drive the traffic that generates AOL’s search revenues. Put
simply, the Board and management believe that the number of access
subscribers would be meaningfully negatively impacted if AOL did not
have leading-edge content and services, and similarly the number of
consumers using AOL for search would decline if there were no content
drawing them to AOL’s sites.
Mr. Minson explained these considerations to Mr. Smith at the January 13
meeting. In response, Mr. Smith conceded that Starboard’s estimate of
the supposed Display business’s losses was likely too high and failed to
take into account the inter-dependence of AOL’s operations. Mr. Minson
offered to provide Mr. Smith, on a confidential basis, more information
on AOL’s business and profitability. Mr. Smith declined the offer.
AOL’s Lead Independent Director and senior management had additional
meetings with Mr. Smith to hear his concerns. For example, at a meeting
with Mr. Armstrong, Mr. Reynolds and others on February 7, 2012, Mr.
Smith for the first time said that Starboard wanted to designate
directors to the Board, including Mr. Smith himself. After the meeting,
on February 10, 2012, in an effort to find a resolution to Starboard’s
concerns and avoid a costly proxy fight, Mr. Reynolds told Mr. Smith
that the Board would agree to nominate two independent directors that
were mutually agreeable to AOL and Starboard. Rather than consider this
reasonable proposal, Mr. Smith continued to demand that Starboard have
direct representation on the Board — including Mr. Smith.
Mr. Reynolds explained to Mr. Smith that the Board did not think that it
was in the best interest of AOL’s stockholders for the Board to include
a Starboard representative. AOL’s directors firmly believed that the
Board should include only those persons who, unlike Starboard, do not
have pre-conceived, hardened views of the Company’s long-term strategy.
Moreover, AOL’s directors felt that given Starboard’s, particularly Mr.
Smith’s, prior comments about AOL’s management and Board, any Starboard
representative would be a disruptive and distracting, rather than a
value enhancing, presence on the Board.
On April 25, 2012, AOL made another attempt to reach a reasonable
resolution with Starboard and was rebuffed once more. In an effort to
avoid the costly and damaging proxy fight with Starboard, Mr. Reynolds
reached out to Mr. Smith to offer a joint statement issued by the
Company and Starboard with respect to the Company’s business plan and
strategy in light of the suggestions made by Starboard. However,
Starboard declined the offer and to date, the parties have not been able
to reach an amicable resolution.
STARBOARD’S REACTION TO THE PATENT AGREEMENT ANNOUNCEMENT
DEMONSTRATES ITS SELF-INTEREST AND SHORT-SIGHTEDNESS
The self-interest of Starboard was on stark display in its reaction to
the announcement on Monday, April 9, 2012 that AOL had reached a
definitive agreement to sell a significant portion of its patent
portfolio and license additional patents to Microsoft Corporation for
nearly $1.1 billion in cash. AOL publicly stated that upon the closing
of the transaction it planned to return a significant portion of the
patent sale proceeds to AOL’s stockholders. AOL’s stock price rose over
40% to a 52-week high on this news, creating approximately $800 million
in additional stockholder value. The reaction by industry analysts to
the announcement was similarly and uniformly positive, with analysts
noting that the patent sale would not only allow AOL to deliver
substantial value to stockholders, but would also allow the company to
focus on executing its strategy of being a leading global digital
content and advertising platform.
Normally, such news would be a cause for all stockholders to celebrate.
However, shortly after the market opened the next day, Starboard sent
and publicly disclosed a letter to the Board claiming that the patent
sale did “little to address our serious concerns with the Company’s poor
operating performance and substantial losses in the Display business.”
Starboard repeated what we believe is its false and misleading claim
that AOL’s supposed “Display business” is currently losing over $500
million per year. Starboard’s actions proved to be value-destructive for
AOL’s stockholders. The market responded by selling off AOL stock,
thereby erasing tens of millions of dollars in shareholder value shortly
following the public dissemination of Mr. Smith’s letter.
STARBOARD’S DESTRUCTIVE CAMPAIGN HAS BEEN BASED ON FALSE AND
MISLEADING STATEMENTS IN ITS PROXY MATERIALS
Starboard’s proxy solicitation materials, and in particular its
preliminary and definitive proxy statements, continue Starboard’s
disingenuous campaign against AOL’s Board and management by
misrepresenting AOL’s financial condition and the events leading up to
the proxy contest. Indeed, the proxy largely re-hashes the same
erroneous statements repeatedly advocated in Starboard’s prior letters
to the Board and in Starboard’s prior SEC filings.
Specifically:
-
The proxy states that “AOL’s Display business is currently losing over
$500 million per year.” Despite being made aware of what we believe is
the erroneous and misleading nature of its assertion regarding the
so-called Display business, Starboard has repeatedly declined the
opportunity to receive, on a confidential basis, information that
would offer a more detailed view into the financial performance of
AOL’s business, deciding instead to repeat its loss “estimates” in the
“Display business” in an attempt to impugn AOL’s content-based growth
strategy to support Starboard’s proxy campaign;
-
Starboard contends that AOL’s current management and Board have a
history of poor capital allocation. However, to support this
contention, Starboard largely relies on the claim that AOL spent $2.3
billion on acquisitions since 1999, long before the Board and
current management team were in place, and during a period when AOL
was wholly-owned by Time Warner. In fact, AOL’s current Board and
management team have an exemplary capital management record, having
divested non-core assets, generated substantial tax benefits and made
substantial share repurchases during its tenure;
-
We believe Starboard’s proxy statements misleadingly suggest that
Starboard was responsible for causing AOL to explore the sale of its
patent portfolio and the ultimate patent sale agreement with
Microsoft. In fact, as AOL publicly disclosed in its February 24, 2012
press release, AOL began exploring ways to monetize its intellectual
property in October 2011, long before Starboard’s initial December 21,
2011 letter (which, in itself, never mentioned a patent portfolio
monetization strategy) and public statements about the Company;
-
The proxy also wrongly suggests that AOL’s directors lack a
substantial ownership interest in the Company, claiming that the
directors collectively hold only 1.8% of the Company’s stock. We
believe this contention is demonstrably false and is grounded in the
mischaracterization that Tim Armstrong, AOL’s CEO, directly owns only
1.7% of AOL’s outstanding stock — mostly as a result of stock grants
made in connection with AOL’s spin-off from Time Warner. In fact, Mr.
Armstrong has acquired almost one million AOL shares on the open
market and beneficially owns in total over 4% of AOL stock, making
him one of AOL’s largest stockholders. As a result, AOL’s directors
and executive officers in fact collectively hold almost 5% of AOL’s
stock, an amount approximately equal to the percentage owned by
Starboard.
Starboard’s proxy statements also contains what we believe are
misleading statements with respect to AOL’s Patch operations, a focus of
their complaints about AOL’s business model:
-
Starboard suggests that Patch is losing $150 million per year on a
going-forward basis, thereby exaggerating the extent of Patch’s
current losses to bolster its call for AOL to exit that business. In
fact, AOL has previously publicly disclosed that 2011 was expected to
be the high water mark for the Company’s investment in Patch and that
it expected
-
Patch’s financial performance to improve going forward.
-
Starboard also baselessly attempts to impugn the integrity of AOL’s
CEO by suggesting that Mr. Armstrong has a conflict of interest with
respect to Patch, since Mr. Armstrong was a founder of Patch. For
example, the proxy states that “We believe [Mr. Armstrong’s] emotional
and personal connection to Patch has clouded his judgment with regards
to continuing to fund this money-losing venture.” Starboard, however,
offered no factual foundation for the claim that Mr. Armstrong has an
“emotional and personal” connection to Patch, nor do they provide
anything to suggest that Mr. Armstrong’s prior involvement with Patch
has “clouded his judgment.” In fact, the strategy to build Patch has
been and continues to be reviewed and approved by AOL’s independent
Board.
PROTECT YOUR INVESTMENT: SUPPORT YOUR BOARD’S EFFORTS TO
ENHANCE STOCKHOLDER VALUE
VOTE THE WHITE PROXY CARD TODAY
AOL seeks your support in electing the Company’s eight highly qualified
nominees and your Board unanimously recommends that stockholders vote “FOR”
the Company’s experienced and highly qualified Director nominees: Tim
Armstrong, Richard Dalzell, Karen Dykstra, Alberto Ibargüen, Susan Lyne,
Patricia Mitchell, Fredric Reynolds and James Stengel.
Your vote is extremely important, no matter how many or how few shares
you own. Whether or not you plan to attend the Annual Meeting, you have
an opportunity to protect your investment in AOL by voting the WHITE
proxy card. We urge you to vote today by telephone, by Internet, or by
signing and dating the enclosed WHITE proxy card and returning it
in the postage-paid envelope provided. Please do not return or
otherwise vote any proxy card sent to you by Starboard. If you have
any questions or need assistance voting your shares, please contact
MacKenzie Partners, Inc., which is assisting us in connection with this
year’s Annual Meeting, at 800-322-2885.
On behalf of your Board, we thank you for your continued support of AOL
as we work to create a lasting business that provides stockholders with
exceptional value.
Sincerely,
/s/
Tim Armstrong
Chairman and Chief Executive Officer
If you have any questions, require assistance in voting your shares,
or need
additional copies of AOL’s proxy materials, please call MacKenzie
Partners
at the phone numbers listed below.
105 Madison Avenue
New York, NY 10016
(212) 929-5500 (call collect)
Or
TOLL-FREE (800) 322-2885
About AOL
Having helped millions of Americans to get online, AOL Inc. (NYSE: AOL)
is on a mission to inform, entertain and connect the world. The home of
a world-class collection of premium brands, AOL creates original content
that engages audiences on a local and global scale. We help marketers
connect with these audiences through effective and engaging digital
advertising solutions.
From time to time, we post information about AOL on our investor
relations website (http://ir.aol.com)
and our official corporate blog (http://blog.aol.com).
Forward-Looking Statements
This letter may contain “forward-looking statements” within the meaning
of the federal securities laws, including statements concerning
anticipated future events and expectations that are not historical
facts. Words such as “anticipates,” “estimates,” “expects,” “projects,”
“forecasts,” “intends,” “plans,” “will,” “believes” and words and terms
of similar substance used in connection with any discussion of future
operating or financial performance identify forward-looking statements.
These forward-looking statements are based on management’s current
expectations and beliefs about future events. As with any projection or
forecast, they are inherently susceptible to uncertainty and changes in
circumstances. Except as required by law, we are under no obligation to,
and expressly disclaim any obligation to, update or alter any
forward-looking statements whether as a result of such changes, new
information, subsequent events or otherwise. Various factors could
adversely affect our operations, business or financial results in the
future and cause our actual results to differ materially from those
contained in the forward-looking statements, including those factors
discussed in detail in the “Risk Factors” section contained in our
Annual Report on Form 10-K for the year ended December 31, 2011 (the
“Annual Report”), filed with the Securities and Exchange Commission. In
addition, we operate a web services company in a highly competitive,
rapidly changing and consumer- and technology-driven industry. This
industry is affected by government regulation, economic, strategic,
political and social conditions, consumer response to new and existing
products and services, technological developments and, particularly in
view of new technologies, the continued ability to protect intellectual
property rights. Our actual results could differ materially from
management’s expectations because of changes in such factors. Achieving
our business and financial objectives, including growth in operations
and maintenance of a strong balance sheet and liquidity position, could
be adversely affected by the factors discussed or referenced under the
“Risk Factors” section contained in the Annual Report as well as, among
other things: 1) changes in our plans, strategies and intentions; 2)
continual decline in market valuations associated with our cash flows
and revenues; 3) the impact of significant acquisitions, dispositions
and other similar transactions; 4) our ability to attract and retain key
employees; 5) any negative unintended consequences of cost reductions,
restructuring actions or similar efforts, including with respect to any
associated savings, charges or other amounts; 6) market adoption of new
products and services; 7) the failure to meet earnings expectations; 8)
asset impairments; 9) decreased liquidity in the capital markets; 10)
our ability to access the capital markets for debt securities or bank
financings; 11) the impact of “cyber-warfare” or terrorist acts and
hostilities and 12) the approval of the patent transaction with
Microsoft Corporation by antitrust authorities and the satisfaction of
the other closing conditions to that transaction as well as to factors
that could affect the manner, timing and amount of the return of any of
the sale proceeds to AOL shareholders including the need for AOL to
retain cash for its business or to satisfy liabilities.
Additional Information
In connection with the solicitation of proxies, AOL has filed with the
Securities and Exchange Commission, a definitive proxy statement and
other relevant documents concerning the proposals to be presented at
AOL’s 2012 Annual Meeting of Stockholders. The proxy statement contains
important information about AOL and the 2012 Annual Meeting. In
connection with the 2012 Annual Meeting, AOL has mailed the definitive
proxy statement to stockholders. In addition, AOL files annual,
quarterly and special reports, proxy statements and other information
with the SEC. You are urged to read the proxy statement and other
information because they contain important information about AOL and the
proposals to be presented at the 2012 Annual Meeting. These documents
are available free of charge at the SEC’s website (www.sec.gov)
or from AOL at our investor relations website (http://ir.aol.com).
The contents of the websites referenced herein are not deemed to be
incorporated by reference into the proxy statement.
AOL and its directors, executive officers and certain employees may be
deemed to be participants in the solicitation of proxies from AOL’s
stockholders in connection with the election of directors and other
matters to be proposed at the 2012 Annual Meeting. Information regarding
the interests, if any, of these directors, executive officers and
specified employees is included in the definitive proxy statement and
other materials filed by AOL with the SEC.
Source: AOL, Inc.
AOL, Inc.
Media:
Maureen Sullivan, 212-206-5030
Maureen.Sullivan@teamaol.com
or
Investor
Relations:
Eoin Ryan, 212-206-5025
Eoin.Ryan@teamaol.com
