Finally! AOL Finds a Way to Return Value to Shareholders

Microsoft (NASDAQ:MSFT) is set to pay AOL (NYSE:AOL) just over $1 billion in cash for 800 of the latter’s patents and related applications, as well as a non-exclusive license to the patents AOL retains.

CEO Tim Armstrong said AOL will retain 300 patents and patent applications, including those related to advertising, search, content generation, and social networking, and said the company had received a license to the patents being sold to Microsoft.

“This is a valuable portfolio that we have been following for years and analyzing in detail for several months,” Microsoft’s General Counsel Brad Smith said.

The deal, expected to be completed by the end of the year, includes the sale of an AOL unit on which AOL expects to record a capital loss for tax purposes. If the deal falls through, Microsoft will pay AOL a termination fee of $211.2 million, AOL said in a regulatory filing.

The announcement puts to rest questions about how AOL would realize some of the value of its patent trove. Investors have been pressuring the company to focus more on making money.

The patents came into question last month with the news Yahoo (NASDAQ:YHOO) was suing Facebook over several patent infringements. AOL’s portfolio covers similar areas of social media and information organization, leading many to wonder whether the company would follow suit in an effort to realize the value of those patents.

AOL said it plans to return a “significant portion of the sale proceeds” to shareholders. Shares jumped more than 35 percent Monday morning in pre-market trading.