Beleaguered AOL went on the offensive Monday, announcing a $1.056 billion deal with Microsoft that will transfer more than 800 patents to Redmond, while buying the once-mighty online company time to fight off unhappy shareholders.
The Wall Street Journal is reporting that AOL Inc. agreed to sell more than 800 "patents and related products" to Microsoft for $1.056 billion, a move Wall Street immediately rewarded with a nearly 45 percent surge in AOL's share price upon word that a "significant portion" of the sale will find its way into the hands of shareholders.
AOL Patent Portfolio's True Value
According to patent advisory firm M-Cam Inc., AOL's patent portfolio is valued at $290 million, so the $1.056 billion sale was quite a nice surprise to shareholders, who responded by pushing up the stock price to $26.40 per share -- the highest in nearly a year and a half.
"Most on the Street viewed $300 million as the likely maximum value," explained Benchmark analyst Clayton Moran. "Relative to this expectation, AOL has created $7.63 per share in stock value." The analyst believes a one-time cash dividend "would be appropriate after the close of the deal."
AOL CEO a Bit Cagey
AOL CEO Tim Armstrong offered little insight as to what the internet patents in question covered, instead jokingly referring to them as "beachfront property in East Hampton." The patents were initially acquired from Time Warner Inc. when the entertainment giant sent AOL packing in 2009, effectively ending the failed marriage of the companies.
The news likely came as a blow to Starboard, who owns 5.2 percent of AOL and has been actively pursuing "a proxy campaign to win seats on AOL's board" after voicing dissatisfaction with CEO Armstrong's attempts to buoy ad sales for the company's various online portals.
Starboard has been planning a showdown with AOL at the company's annual shareholder meeting on June 14, but had no immediate comment on today's news.
Beyond the press release, Microsoft also had no further comment on the sale, which will grant AOL a license to the patents in question as well as "a nonexclusive license for Microsoft to AOL's remaining portfolio of 300 patents, which include those for advertising, search, content generation, social networking and mapping technology."