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Video Flexible, foldable, wearable computer platforms Top tech holiday gifts Electronic Arts bets big on Jedis and Wookies Follow Reuters Facebook Twitter RSS YouTube Read Exclusive: North Korea's military to share power with Kim's heir | 8:58am EST Banks gorge on ECB loans, market cheer short-lived | 1:35pm EST Slumping Gingrich promises sharper counter-punch 20 Dec 2011 Britain "concerned" about Falklands ship ban 11:03am EST Special Report: Phantom firms bleed millions from Medicare | 2:26pm EST Discussed 155 Ron Paul strongly defends anti-war policies 118 Slumping Gingrich promises sharper counter-punch 114 North Korea state TV says Kim Jong il has died Watched Kim Jong-un to share power 3:35am EST Tears flow for Dear Leader Tue, Dec 20 2011 Argentine protesters remember 2001 financial meltdown 6:56am EST Investment fund pushes for AOL strategy shake-up Tweet Share this Email Print Related News Blackstone, Bain plan Yahoo bid: source Thu, Dec 1 2011 Olympus ex-CEO campaigns to oust board Thu, Dec 1 2011 Exclusive: PE firm eyes buyout for Yahoo's U.S. business Tue, Nov 29 2011 Analysis & Opinion RBS’s board lessons Olympus must dump its board to save itself Related Topics Tech » Deals » Global Deals Review: 2011 Q3 » Global Deals Review: 2011 Q2 » Global Deals Review » Inflows Outflows » By Yinka Adegoke and Sinead Carew Wed Dec 21, 2011 3:47pm EST (Reuters) - Activist investment fund Starboard Value has taken a 4.5 percent stake in AOL Inc and is pushing for a meeting with the Internet company's chief executive and the board to address what it sees as strategic failings. Starboard sent a letter to AOL CEO Tim Armstrong and the board on Wednesday in which it said AOL is deeply undervalued and blamed the company's massive operating losses in its display advertising business. It also expressed concern over further acquisitions and investments in money-losing growth initiatives like its local service business Patch. Armstrong was an early investor in Patch before he joined AOL in 2009. Armstrong has led the strategy to steer the company toward a display advertising and content business model similar to Yahoo Inc. Under Armstrong, AOL has spent nearly $700 million in acquisitions including high-profile names like Huffington Post and TechCrunch. But even before he joined, AOL had made even bigger acquisitions to try to reinvent itself. It spent $850 million buying social networking site Bebo in 2008, which was sold for less than $10 million just two years later. Starboard, which estimated that AOL may be losing more than $500 million per year in its display ad business alone, asked for an in-person meeting with the board to discuss how the company's operating performance and its valuation can be improved. The fund, which manages assets in the "upper hundreds of millions" is looking to engage with the board ahead of its annual shareholder meeting on February 25, when directors will be up for re-election. Shares in AOL have fallen some 40 percent since being spun off from Time Warner Inc in late 2009. Starboard argued in its eight-page letter that investors are now completely discounting the display advertising and content business that Armstrong has focused the business's future on. Starboard said the market currently prices the entire business at around the value of AOL's declining dial-up Internet access business and its net cash position. Armstrong has been trying to rapidly evolve AOL away from the shrinking but profitable business. The dial-up business is believed to be in long-term terminal decline as more Americans take up cable broadband and other faster connections. "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," the letter said. AOL argued in a statement that it has "significantly reduced costs, sold non-core assets, made significant investments for our future, and also recently repurchased over 10% of outstanding shares," over the last two years. The New York-based company also said it has a clear strategy and operational plan which will create shareholder value. "We will continue to aggressively execute on our strategy in 2012 as we continue the turnaround of AOL." Miller Tabak analyst David Joyce, who has a buy rating on AOL, said he is broadly supportive of Armstrong's strategy to focus on media and advertising. He said after a difficult period AOL's display advertising business was starting to recover. "With the display ad growth coming through that's starting to help and their recent profits growth outpaced our estimates," said Joyce. "There's momentum building in this strategy." Starboard was spun off from Ramius LLC in March 2011 and is led by Chief Executive Jeff Smith. It describes itself as a value investor focused on U.S. small cap companies. Its investment team has previously been involved in shareholder activism with smaller medical and tech companies. Shares in AOL were up 2 percent, or 29 cents, to $15.10 in afternoon trading on the New York Stock Exchange on Wednesday. (Reporting by Yinka Adegoke and Sinead Carew in New York; Editing by Gerald E. McCormick, Tim Dobbyn and Phil Berlowitz) Tech Deals Global Deals Review: 2011 Q3 Global Deals Review: 2011 Q2 Global Deals Review Inflows Outflows Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above. 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