AOL (AOL) Sells Patents to Microsft for $1 Billion

AOL announced that the company has entered into a definitive agreement to sell over 800 of its patents to Microsoft Corporation (MSFT) and to grant Microsoft a non-exclusive license to its retained patent portfolio for aggregate proceeds of $1.056B in cash.  

Following the sale, AOL will continue to hold a significant patent portfolio of over 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 $40M 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 its board 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 transaction is expected to be completed by the end of 2012, upon the satisfaction of customary conditions and regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. .