AOL has entered into a definitive agreement to sell over 800 of its patents and their related patent applications to Microsoft and to grant Microsoft a non-exclusive license to its retained patent portfolio for aggregate proceeds of $1.056 billion in cash. AOL also received a license to the patents being sold to Microsoft.
Following the sale, AOL will continue to hold a 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.
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 percent of its total deferred tax assets, to offset any ordinary income taxes resulting from the license of its remaining patent portfolio.
Tim Armstrong (Chairman and CEO, AOL): The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio.
“This is a valuable portfolio that we have been following for years and analyzing in detail for several months,” said Brad Smith, General Counsel and Executive Vice President, Legal and Corporate Affairs, Microsoft. “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.”
Image Courtesy: AOL
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.
Evercore Partners and Goldman Sachs acted as financial advisors and Wachtell, Lipton, Rosen & Katz and Finnegan, Henderson, Farabow, Garrett & Dunner acted as legal counsel to AOL in connection with the transaction.