Glass Lewis recommends election of an activist investor to the netco's board

It’s a lively spring for activist investors as one group ramps up the pressure on AOL weeks after another forced the resignation of Yahoo’s chief executive. The dissension highlights the struggle of “old” new-media companies to rethink their business and who should anchor the boardroom while they do it.

Glass Lewis, which advises shareholders of public companies how to vote at annual meetings, on Tuesday added its voice to critics of AOL, recommending the election of an activist investor to the netco’s board.

“In AOL, we find a firm more than two years removed from a complex spinoff from its former parent Time Warner after a failed years-long effort to create a new media conglomerate,” the firm said, as “AOL’s shifting business model and a bloated cost structure presented significant challenges for the company.”

AOL stock plunged after it split from Time Warner in 2010, falling from $23 to under $12 a share last summer. But it’s rebounded this year and closed Tuesday off 0.73% at $27.19. The runup last April was triggered in large part by a sale of patents to Microsoft for more than $1 billion. Activist investor Starboard Value had suggested such a patent sale but AOL insisted that it was already exploring a transaction before Starboard weighed in.

Glass Lewis’ move follows a recommendation by another big proxy advisory firm, Institutional Shareholder Services, the day before urging stockholders to vote for two Starboard nominees, the fund’s founder and CEO Jeffrey Smith and Dennis Miller, a media and tech investor and consultant to Lionsgate Entertainment — which itself had a protracted battle with Carl Icahn.

AOL’s annual meeting is June 14. Starboard has put up three candidates for the eight-member board to oppose three directors backed by AOL. It has been in a tussle with management since last year over issues ranging from heavy investment in AOL’s Patch venture to what it calls a sluggish response to declining advertising display revenue.

AOL has made some concessions but says Starboard’s nominees don’t understand its business and that the fund has no long-term strategy beyond breaking up the company.

The company said Tuesday that it’s pleased Glass Lewis rejected Starboard’s full slate of “inexperienced” nominees. “The Glass Lewis rejection of Starboard’s full slate reinforces our belief that our director nominees have the qualifications necessary to most effectively lead AOL and to further enhance stockholder value,” it said in a statement.

Proxy challenges have had mixed success. Last month, investor Daniel Loeb’s Third Point forced three of its nominees onto Yahoo’s board, Loeb, Michael J. Wolf and Harry Wilson. But Loeb had unusual leverage. Third Point had just uncovered a false degree listed on CEO Scott Thompson’s resume and he had to resign.

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