* AOL to return ‘significant portion’ of proceeds to
shareholders
* Microsoft gets non-exclusive license to the 300 patents
AOL retains
* AOL shares up 43 pct
(Updates share rise; adds analysts’ comments, background,
details)
By Sayantani Ghosh and Greg Roumeliotis
April 9 (Reuters) – AOL Inc said it would sell more
than 800 patents to Microsoft Corp for just over $1
billion, surprising i nvestors with the size of the deal and
sending AOL shares up 43 percent.
“It’s a great deal for AOL,” said Clayton Moran, an analyst
with Benchmark. “Investors had anticipated little to no value
for the portfolio – a few hundred million at the most.”
AOL said a “significant portion” of the proceeds would be
passed on to shareholders.
AOL will continue to hold more than 300 patents related to
key strategic areas for the company, including advertising,
search, and social media, and will receive a license to the
patents being sold to Microsoft. As part of the deal, Microsoft
will be granted a non-exclusive license to the patents AOL
retains.
AOL declined to comment on the types of patents to be sold
to Microsoft.
One person familiar with the matter said Facebook Inc and
Google Inc participated in the patent auction.
Spokesmen for Facebook and Google were not immediately available
for comment.
“It’s a bigger deal than we expected,” said Miller Tabak
analyst David Joyce, who raised his price target on AOL shares
to $30 Monday morning.
AOL shares jumped 43 percent to $25.37 in morning trade.
One of the pioneering companies during the early days of the
Internet, AOL was known for e-mail and dial-up access services.
It has been trying to reshape itself into a media and
entertainment powerhouse dependent on advertising revenue.
AOL has struggled to regain a foothold as one of the world’s
most dominant brands as Facebook and Google have gobbled up
online advertising share.
Activist shareholder Starboard Value LP had pressed AOL
management to pursue a patent auction, arguing the portfolio
could produce more than $1 billion in licensing income if
properly monetized.
AOL said in February that it had authorized the start of an
auction several months before Starboard launched a campaign to
shake up the company and the board..
AOL and Microsoft are no strangers when it comes to
partnerships. Last year the two companies along with Yahoo Inc
formed an advertising alliance that allows each of the
partners to sell each other’s unsold premium advertising
inventory – big splashy units that appear on Web pages. [ID:
nN1E7A7245]
“This is a valuable (patent) portfolio that we have been
following for years and analyzing in detail for several months,”
Microsoft General Counsel Brad Smith sa id in a statement.
Microsoft declined to comment further.
The deal, expected to be completed by the end of 2012,
includes the sale of an AOL unit, on which AOL expects to record
a capital loss for tax purposes.
AOL said it expected to use about $40 million of its
existing deferred tax assets — 20 percent of its total — to
offset any ordinary income taxes resulting from the licensing of
its remaining patent portfolio.
Evercore Partners and Goldman Sachs acted as financial
advisers to AOL. Wachtell, Lipton, Rosen & Katz and Finnegan,
Henderson, Farabow, Garrett & Dunner acted as legal counsel.
Covington and Burling LLP offered legal advice to Microsoft.
If the deal falls through, Microsoft may pay AOL a
termination fee of $211.2 million, AOL said in a regulatory
filing.
(Additional reporting by Jennifer Saba in New York; Editing by
Supriya Kurane and John Wallace)
