AOL chief Tim Armstrong probably knew that Starboard Value’s Jeffrey Smith — who controls 5.3% of the shares — wouldn’t fold up his tent after yesterday’s deal with Microsoft, which resulted in a 44% pop in the stock price. The dissident shareholder, who lobbied for a patent sale, says today in a letter to the board that he’s “pleased” the company took the “meaningful first step in unlocking value for AOL shareholders.” But Smith adds that the deal “does little to address our serious concerns with the Company’s poor operating performance” including its losses in display ad sales which Smith pegs at $500M a year — including $150M for the Patch local news service. “Patch is an unproven and, thus far, unsuccessful business model that is draining valuable resources from the Company,” Smith says. He’s also wary about Armstrong’s plans for the cash that AOL will have after it completes the patent sale to Microsoft; it will amount to $1.4B, or $15,35 a share. Although the CEO promised to return a “significant portion” of the proceeds from the sale to shareholders, Smith asks: “Why wouldn’t the Company simply return all of the proceeds?” He fears that AOL will use some of the money for “poorly conceived acquisitions and investments into money-losing initiatives like Patch.” Smith says he’s preparing to disclose some candidates that he’d like to see elected to the AOL board.