Microsoft strikes $1bn deal to buy patents from AOL

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AOL Inc said it would sell over 800 of its patents and related applications to Microsoft Corp, and would grant Microsoft a non-exclusive license to the patents it retains, for slightly over $1bn (£.6bn) in cash.

The internet company, once known at America Online, said it planned to return a “significant portion of the sale proceeds” to shareholders.

AOL will continue to hold over 300 patents including advertising, search, and mapping, and said it received a licence to the patents being sold to Microsoft.

Microsoft’s general counsel Brad Smith said: “This is a valuable portfolio that we have been following for years and analysing in detail for several months.”

Last month, media reports said that AOL had hired Evercore Partners after being pushed by activist shareholder Starboard Value LP who believed the company’s patent portfolio could produce more than $1bn in licensing income if properly monetised.

The transaction, which is expected to be completed by the end of this year, includes the sale of an AOL unit on which AOL expects to record a capital loss for tax purposes. Evercore Partners and Goldman Sachs acted as financial advisors to AOL. Wachtell, Lipton, Rosen & Katz and Finnegan, Henderson, Farabow, Garrett & Dunner acted as legal counsel.

If the deal falls through, Microsoft will pay AOL a termination fee of $211.2m (£140.6m), AOL said.