AOL is to sell more than 800 patents and their related patent applications to Microsoft, and will grant Microsoft a non-exclusive license to its retained patent portfolio, for aggregate proceeds of $1,056-billion in cash.
Following the sale, AOL will continue to hold a patent portfolio of more than 300 patents and patent applications spanning core and strategic technologies, including advertising, search, content generation/management, social networking, mapping, multimedia/streaming, and security among others.
AOL also received a license to the patents being sold to Microsoft.
The patent sale includes the sale of the stock of an AOL subsidiary upon which AOL expects to record a capital loss for tax purposes and as a result, cash taxes in connection with the sale should be immaterial. Additionally, AOL expects to utilize approximately $40-million of its existing deferred tax assets, representing approximately 20% of its total deferred tax assets, to offset any ordinary income taxes resulting from the license of its remaining patent portfolio.
AOL management and directors intend to return a significant portion of the sale proceeds to shareholders and will determine the most efficient and effective method to do so prior to the closing of the transaction. Pro forma for the sale and license, as of December 31, 2011, AOL would have had approximately $15 per share of cash on hand.
“The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio,” says Tim Armstrong, AOL’s chairman and CEO. “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.”
Brad Smith, general counsel and executive vice-president: legal & corporate affairs at Microsoft, comments: “This is a valuable portfolio that we have been following for years and analysing in detail for several months. AOL ran a competitive auction and by participating, Microsoft was able to achieve our two primary goals: obtaining a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio.”
The transaction is expected to be completed by the end of 2012.