AOL shareholders hoping to get a fat dividend check after Microsoft's million dollar purchase of the Internet company's patent portfolio are in for a surprise. Instead of a juicy dividend, shareholders will get their gains via a stock buyback that will be announced by the end of the week.
According to AllThingsD, citing "sources close to the situation," AOL has discussed the issue with major shareholders and evaluated related tax considerations. In the end, the New York-based Internet company decided that a share buyback is the best way to render its gains from the $1.056 billion sale of its impressive intellectual property portfolio, comprised of roughly 800 patents and non-exclusive licensing rights to the patents AOL still holds.
The intellectual property sale helped boost the company's stock by nearly 80 percent since the beginning of the year, and also played a major part in AOL CEO Tim Armstrong's efforts to defeat an activist shareholder assault from the hedge fund Starboard Value and re-elect the company's eight directors.
AOL shares could still have a significant impact from a large buyback even without the expected dividend. According to various Wall Street analysts, the value of the patent payout could rise to roughly $11 per share, however that is just an estimate, not an exact reflection. The sale of AOL patents to software giant Microsoft officially closed on June 15.
"AOL is committed to returning 100% of the patent proceeds to shareholders," the Internet company said at the time. "AOL's Board and management team are currently working on determining the most efficient and expedient method to return the proceeds of the patent transaction."
On the other hand, if Starboard decides to sale its 5.3 percent stake in AOL, the potential impact could raise some concerns. AOL could potentially reduce that impact if it agrees to include one of Starboard's nominees in the current race for two new AOL board members. According to AllThingsD's sources, however, that was unlikely to happen, and AOL expects the hedge fund to ditch its stake.
With the sale now completed, Microsoft is expected to make good on the plans announced back in April, that it would assign patents and patent applications to Facebook as part of a $500 million cash deal. Facebook is currently engaged in litigation with Yahoo over patent infringement claims. In an effort to bolster its intellectual property portfolio, the social networking giant also purchased 750 patents from IBM, covering "software and networking" technologies.
Shareholders could see juicy gains even without a dividend, as stock buybacks usually drive a company's stock share price higher. This would come as a welcome change, as shareholders have seen the share price drop eight percent in the past year, and as much as 20 percent in the last five years.
