AOL (AOL), Microsoft (MSFT) Announce $1.056B Patent Deal; AOL Shows Willingness to Pay Shareholders
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Shares of AOL (NYSE: AOL) have surged more than 33 percent in Monday's pre-open session following news the company agreed to a $1.056 billion patent deal with Microsoft (Nasdaq: MSFT).
Under the agreement, AOL will sell over 800 patents and the related applications to Microsoft and also grant Microsoft a non-exclusive license to its retained patent portfolio. 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 $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.
AOL management and its Board of Directors 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.
Under the agreement, AOL will sell over 800 patents and the related applications to Microsoft and also grant Microsoft a non-exclusive license to its retained patent portfolio. 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 $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.
AOL management and its Board of Directors 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.
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