Patents are big money right now. Many companies are using patents as a means to gain a competitive edge – if not through developing technology worthy of patents, then by filing lawsuits for supposed infringement of patents – but that doesn’t mean that patents are always valued appropriately.
AOL (AOL) has been pursuing options to maintain its position in the face of slow advertising growth and rapidly reducing subscribers. The company has lost almost 30% of its revenue since spinning off from Time Warner (TWX) in 2009. CEO Tim Armstrong has been in talks with private equity firms at least as far back as September, when he approached several private equity firms about combining AOL and Yahoo (YHOO). Selling or incensing its 800+ patent portfolio was one of its options, but there was a big difference in the price at which that portfolio was being valued.
Patent-advisory firm M-Cam estimated that AOL’s portfolio value would be worth roughly $290 million in a sale. “That is the absolute ceiling price,” said M-Cam President David Pratt. “It’s worth much less than what investors have estimated, based largely on the fact that most of AOL’s patents are not commercially viable, or junk grade.” In contrast, AOL shareholder Starboard Value LP estimated that that patents would yield more than $1 billion in licensing income if “harvested correctly,” referring to realizing the greater long term value AOL’s assets present.
It appears Starboard Value was right.
“AOL Inc. agreed Monday to sell more than 800 patents and related products to Microsoft Corp. (MSFT) for $1.1 billion, as the struggling online company looks to raise fresh cash while fighting a boardroom showdown with an activist shareholder,” reports the Wall Street Journal. “The deal also gives Microsoft a license for AOL’s remaining patent portfolio.” While AOL did not say how it would distribute the money, it “pledged to return a ‘significant portion’ of the sale proceeds to shareholders.”
Starboard Value owns more than 5% of the company and is currently in the process of fighting for board seats by proxy.