AOL FINDS A PARTNER TO RUN ITS TROUBLED PATCH DIVISION
The New York Times
January 15, 2014
In May 2012, Tim Armstrong, the chief executive of AOL, promised restive investors that he would make Patch, the company's local news division, profitable by the end of 2013. When the deadline arrived and Patch was still losing money, Mr. Armstrong promised to take on partners to share the cost.
On Wednesday, AOL announced that it had done just that.
Hale Global, an investment company that specializes in turning around troubled companies through technological innovation, would essentially take over the operation, AOL said.
Hale's intention for now, the companies said, is to keep operating all of Patch's 900 sites.
The financial terms of the deal were not disclosed. But the companies said AOL would put Patch into a new limited liability company that would be operated and majority owned by Hale. The deal effectively removes Patch from AOL's financial books.
Nevertheless, as a minority stakeholder, AOL could benefit if Hale were able to make Patch profitable. Patch's traffic continues to grow and in November passed 16 million unique visitors.
Hale is run by Charles Hale, a Wall Street executive who worked at the hedge fund York Capital Management, and who specializes in investing in troubled technology companies.
Patch has been a personal passion of Mr. Armstrong's, and also something of an albatross. He helped create the network while at Google in 2007 and, upon arriving at AOL, was behind the decision to buy it in 2009. But Patch expanded too quickly and became unwieldy.
Over the years, Patch lost $200 million to $300 million and was the subject of a proxy fight as investors lost confidence. Mr. Armstrong had to promise to pare back his vision, and last year he laid off hundreds of staff members. No details on staffing plans were provided with the announcement of the deal with Hale.
AOL said it had many interested suitors but chose Hale because the company shared Mr. Armstrong's belief that local online news could be highly profitable.
More details on the structure of the new entity will be revealed when quarterly earnings are announced next month, AOL said.
In a note to employees sent out after the market closed on Wednesday, Mr. Armstrong said, "We are retaining a meaningful minority interest in the joint venture, and we stand to benefit from Patch's pivot to platform excellence."
He added, "Hale will help Patch improve, and we will be partners with Hale in the next phase of the journey."