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Microsoft Buys 800 AOL Patents for $1 Billion
AOL described the deal as “tax-efficient”
By: Maureen O'Gara
Apr. 9, 2012 11:00 AM
AOL is selling 800 and some patents and licensing non-exclusively another 300-odd patents and patent applications to Microsoft for a total of $1.056 billion cash.
Well, AOL Tim Armstrong did say the patent portfolio was “beachfront property in East Hampton” and that’s how he’s been shopping it around.
The reported “auction” could be AOL’s last great score although the 300 patents it’s keeping are supposed to span core and strategic technologies like advertising, search, content generation and management, social networking, mapping, multimedia and streaming, and security.
Microsoft’s general counsel Brad Smith said in a statement that “This is a valuable portfolio that we have been following for years and analyzing in detail for several months. 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.”
The portfolio Microsoft’s buying is supposed to relate to the Internet, web browsers (remember Netscape?), social networking, instant messaging and e-mail and the patents go back a ways.
All Things Digital thinks there could be a “large number of early patents related to cache optimization, web page rendering, search engine technologies, and multimedia compression and transmission.”
It says, “While AOL does not seem to have any patents that could be deemed essential to wireless standards, it certainly owns many technologies that are fundamental to electronic and voice messaging, Internet user experience, multimedia sharing, and web-based data retrieval, technologies that have become common place in today’s online world.”
Since Microsoft owns a piece of Facebook they might be used to defend Facebook against Yahoo’s infringement suit or maybe Microsoft means to use them itself in its own social networking efforts.
AOL described the deal as “tax-efficient” and said it would return a “significant portion of the proceeds to shareholders.” Seems it involves an unidentified AOL subsidiary AOL can take a tax loss on.
It said assuming the deal was done on December 31, 2011 it would effectively have cash on hand worth $15 a share. But its stock is already up eight bucks to $26.46 so shareholders may have already gotten their reward. Anyway, the deal has to be approved by antitrust regulators and won’t close before the end of the year.
Armstrong told CNBC, “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 [and] AOL is an undervalued company.”
However, AOL’s attempt to turn into an online content provider looks to be unraveling with its star editor Arianna Huffington reportedly demoted and responsibility for sites like TechCrunch and Engadget transferred to AOL senior vice president Jay Kirsch because writers have been leaving.
Whether the patent deal satisfies Starboard value, the big AOL stockholder that’s started a proxy fight for control of the board remains to be seen. It did want AOL to monetize its IP and figured it could be worth a billion dollars.
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