After Rejecting Starboard, AOL Surges Ahead

Who needs an activist hedge fund? Certainly not the shareholders of AOL.

Since the embattled Internet company prevailed over Starboard Value in their proxy fight this past June, its shares have surged 32 percent and are up about 23 percent since July 24 alone.

No doubt investors have been confident that AOL would continue to reward them even without an activist investor publicly pressuring them.

The latest development came on Monday when AOL announced the final steps in its program to return about $1.1 billion to shareholders in 2012, which were the proceeds from the company’s April sale of more than 800 patents to Microsoft for $1.056 billion in cash.

The company said it will repurchase $600 million worth of stock under an accelerated stock repurchase agreement with Barclays Bank.

In addition, it will issue a $5.15 per share special cash dividend.

On July 25 AOL announced a $400 million Dutch auction tender offer, which served as the first step toward returning about $1.1 billion to shareholders in 2012.

The investment community applauded the deal. In a note to clients Tuesday morning, Barclays analyst Anthony DiClemente wrote, “We view this development very positively, as AOL has executed on its pledge to return the full $1.1 billion in patent sale proceeds to investors by year-end.”  He also lifted his price target on the stock to $35. It closed at $33.86 on Monday.

Back in mid-June AOL shareholders rejected the three director candidates proposed by Starboard, including Starboard chief executive Jeffrey Smith, choosing instead to reelect all eight of AOL’s current board members. Since it lost its battle, Starboard unloaded two million shares of AOL’s stock, reducing its stake from 5.3 percent to about 3 percent by the end of June. It is not yet known what Starboard has done with its remaining shares.

At the time, Smith said in a statement: “We measure success by enhancing value for all shareholders, thereby producing returns for our investors. AOL adopted many of our suggestions, taking AOL stock from near an all-time low to near an all-time high.”

On Monday, however, a person familiar with the company asserted that Smith and Starboard had nothing to do with the company’s sale of patents or its decision to repurchase stock and award a special dividend. This person insists that Starboard got into the stock at an opportune time last September, coming on the heels of AOL reporting disappointing earnings.

Since then AOL has beaten Wall Street estimates and completed the sale of the patents, a decision that was already made before Starboard got into the stock, says the person familiar with the company.

In a statement Monday, AOL chairman and CEO Tim Armstrong said: “Today’s announcement underscores AOL’s commitment to delivering value for our shareholders. AOL remains committed to creating and unlocking value for all shareholders through smart execution and disciplined management of our asset portfolio.”

It is hard to argue with him on that one, which probably explains why shareholders backed the company in its proxy fight.