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AOL Patent Deal With Microsoft Boosts Stock to 52-Week High

Tim Armstrong
Bloomberg/Getty Images

The $1.06 billion agreement, struck at a time when the firm has faced criticism from an activist shareholder, is a "very bullish" sign for the online company, says one analyst.

LONDON - Wall Street on Monday cheered a $1 billion-plus AOL patent deal with Microsoft as investors sent up the stock by more than 40 percent to a new 52-week high.

AOL said it has reached a definitive agreement to sell more than 800 of its patents to Microsoft and to grant the software giant a non-exclusive license to its retained patent portfolio for total proceeds of $1.056 billion in cash.

Activist hedge fund and AOL shareholder Starboard has recently called for a more aggressive patent strategy, with AOL management responding that it was working on patent deals.

Following the Microsoft news, Miller Tabak analyst David Joyce reiterated his "buy" rating on AOL's stock and raised his price target to $30, saying that "domestic display [advertising] is growing and value Is being unlocked" via the patent deal.

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Barclays Capital analyst Anthony DiClemente said about the patent deal: "We view this as very bullish for AOL as it shows quick follow-through on a promise to monetize its patent portfolio - and for more money than the Street had been expecting - while also potentially providing an incremental about $11 per share to return in the form of [stock] buybacks or a one-time dividend."

AOL's stock in early trading was up 42.6 percent at $26.27 after earlier hitting a 52-week high of $26.69.

The Microsoft deal is expected to be completed by the end of 2012. "The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio,” said AOL chairman and CEO Tim Armstrong. “We continue to hold a valuable patent portfolio as highlighted by the license we entered into with Microsoft. The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value.”

Email: Georg.Szalai@thr.com

Twitter: @georgszalai