Under the terms of the auction, AOL shareholders can tender their shares at prices between $27 and $30 a share, Reuters noted.
The company will also use $40 million from an earlier share repurchase program in the upcoming auction.
The struggling Internet pioneer said the stock repurchase was part of an effort to return to shareholders the $1 billion it received for selling a number of patents to Microsoft (NASDAQ:MSFT) earlier this year.
The company said it had considered repurchasing more shares, but had decided to limit the share repurchase program to $400 million in order to avoid tax issues.
AOL said it is evaluating a range of other options to share the remaining proceeds of the patent sale with shareholders by the end of the year, including issuing a dividend.
The company also announced that it had promoted CFO Arthur Minson to COO in order to oversee its latest reorganization.
In tapping Minson to be COO, the company indicated that it will accelerate its plans to restructure its operations into three units: a consumer products group, a content brands unit, including the Huffington Post, and a business advertising unit. Minson will retain the CFO title until a new finance head can be found, Bloomberg noted.
AOL shares rose more than 1% in early Friday trading.