AOL Sells Off 800 Patents to Microsoft for $1 Billion; Stock Jumps 40%

AOL (NYSE:AOL) sold off more than 800 patents to Microsoft in a deal worth more than $1.05 billion.((AOL Sells Patents To Microsoft In $1.06 Billion Deal, WSJ)) Following the deal, AOL will continue to own around 300 patents related to its core businesses like advertising, search and content in its portfolio, while the rest will be shipped away to Microsoft. AOL, however, will still have a license to use the sold patents. AOL competes primarily with the likes of Google (NASDAQ:GOOG), Facebook and Yahoo (NASDAQ:YHOO) in the online advertising space. 

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AOL has been trying to shop its huge patent portfolio to interested buyers for a couple of months. Estimates of the value of its patent portfolio ranged from $1 billion to $290 million, but apparently, it has turned out to be more. AOL will also be selling stock of an AOL subsidiary, which will allow it to record a capital loss and use some of its existing deferred tax assets to cancel out any cash taxes it might have to pay on the $1 billion it will raise through this patent sale.

It was earlier speculated that AOL would sue Facebook for patent infringement just like Yahoo did, right before its IPO, to make a quick buck. While that still cannot be ruled out, apparently AOL was only trying to shop its portfolio to prospective buyers.

Tim Armstrong, AOL’s Chairman and CEO said:

The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio. We continue to hold a valuable patent portfolio as highlighted by the license we entered into with Microsoft. The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value.

This sale gives AOL a much need cash infusion and buys it some more time to figure out how it can restructure its existing businesses as well as focus on better monetizing its content properties. However, AOL has announced that it plans to “return a significant portion of the sale proceeds to shareholders”, so it may just be a move to liquidate some of its assets as part of its recent restructuring efforts and appease irate shareholders.

We currently have a $16 Trefis value estimate for AOL, which now stands nearly 40% below its market price, which has jumped significantly following the patent sale.

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