AOL Sells Patents To Microsoft In $1.056 Billion Deal
--AOL sells more than 800 patents to Microsoft in $1.056B deal
--AOL stock surges as company promises to share proceeds with holders
--Deal comes as AOL faces pressure from activist investor Starboard Value
(Updates with additional details throughout.)
AOL Inc. (AOL) agreed to sell more than 800 patents and related applications, along with a non-exclusive license to its remaining portfolio of patents, to Microsoft Corp. (MSFT) in a $1.056 billion deal.
The news sent AOL shares surging as the online media company said it intends to return a "significant portion" of the sale proceeds to shareholders. The deal comes as AOL has been feeling heat from shareholders.
"The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio," AOL Chief Executive Tim Armstrong said.
Assuming the deal had been done at the end of 2011, AOL says it would have had some $15 a share in cash on hand. "So you look at where we're trading at, our current share price, and you think about $15 of that being in cash based on this transaction--AOL is an undervalued company," Armstrong said in an interview on CNBC.
Shares of AOL surged 35% to $24.90 in premarket trading, while Microsoft slid 0.8% to $31.28.
The transaction is expected to close by year's end, and "at that point we'll have an announcement for shareholders" on what the company will do with its cash, Armstrong said.
AOL recently has felt pressure from activist investor Starboard Value LP, which is mounting a proxy campaign to win seats on AOL's board. The investor has been critical of Armstrong's strategy of investing heavily in online-content businesses as a way of building up the company's ad sales. Starboard wants AOL to take action to create value.
Starboard was unavailable for immediate response.
AOL hasn't said exactly what the patents cover, but the company noted that its remaining patents and patent applications include advertising, search, content generation, social networking and mapping technology.
Armstrong has said previously that the company made a point of securing the patents from Time Warner Inc. (TWX) when AOL spun off from them, and that the company began taking a close look at them in September. Last month, he referred to the patents as like "beachfront property in East Hampton."
Brad Smith, Microsoft's general counsel, said, "This is a valuable portfolio that we have been following for years and analyzing in detail for several months."
The race for patents has heated up in the tech space. Among other recent deals, Google Inc. (GOOG) agreed to acquire Motorola Mobility Holdings Inc. (MMI) last year for about $12.5 billion, partly to secure its lucrative patent portfolio, and a number of bidders pursued Nortel Networks Corp.'s (NRTLQ) patents at auction as well.
-By Kristin Jones; Dow Jones Newswires; 212-416-2208; kristin.jones@dowjones.com
