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AOL Shares Surge On $1.1 Bln Patent Deal With Microsoft


Software giant Microsoft Corp. (MSFT) agreed Monday to buy more than 800 patents and obtain non-exclusive license over 300 additional patents from web services provider AOL, Inc. (AOL) in a $1.056 billion cash deal.

The deal, subject to regulatory approvals, is expected to be completed by the end of 2012. Following the announcement, AOL shares have soared more than 36 percent in pre-market trading.

"The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio. We continue to hold a valuable patent portfolio as highlighted by the license we entered into with Microsoft," AOL's Chairman and CEO Tim Armstrong said in a statement.

Microsoft said the AOL patent portfolio it acquired will be complementary to its existing portfolio. The deal was finalized after AOL ran a competitive auction for the patents, with Microsoft prevailing over other bidders to acquire the valuable portfolio that it has been eying for several years.

The deal will also see AOL receive perpetual license to the patents being sold to Microsoft, while providing Microsoft non-exclusive license to its retained patent portfolio of more than 300 patents.

New York-based AOL's retained portfolio of patents are related to core and strategic technologies, which include advertising, search, content generation/management, social networking, mapping, multimedia/streaming, and security among others.

Upon the closure of the deal, AOL said intends to return a significant portion of the sale proceeds to shareholders. The deal will also help AOL unlock current dollar value and enable it to continue to aggressively execute its strategy to create long-term shareholder value.

AOL added that if the proposed sale had happened before the end of last year, it would have had about $15 per share of cash on hand as of December 31, 2011.

AOL has been under tremendous pressure from shareholders, led by Starboard Value LP, to unlock the value of its significant patent portfolio since beginning of last year. Starboard Value, together with its affiliates, currently owns about 5.2 percent of the outstanding shares of AOL.

The deal comes at a time when technology companies are vying with each other to garner maximum number of patents so as to generate revenues by licensing them.

Among the recent major patent deals, Google Inc. (GOOG) agreed in mid-August 2011 to buy Motorola Mobility Holdings Inc. (MMI) in a $12.5 billion cash deal to gain access to one of the strongest patent portfolios in the industry, over 17,000 patents and 7,500 pending patents.

This deal came as a shot in the arm for Google after it had failed in its bid to acquire the 6,000 patents of Nortel Networks Corp. (NRTLQ.OB). A consortium including Apple Inc. (AAPL), Microsoft, Research In Motion Ltd. (RIMM, RIM.TO), and Sony Corp. (SNE) snapped the deal for $4.5 billion in June 2011, eliminating Google's modest $900 million offer.

There are also a slew of patent wars going on In the technology sector, primarily between the makers of tablet computers as well as smartphone makers. These include technology giants such as Apple, Samsung Electronics, Microsoft, and Motorola Mobility.

by RTTNews Staff Writer

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