AOL Inc. (AOL:US)’s patent portfolio would be valued at about $290 million in a sale, less than a third of the amount that shareholder Starboard Value LP has estimated it could generate, according to patent-advisory firm M-Cam Inc.
“That is the absolute ceiling price,” David Pratt, president of Charlottesville, Virginia-based M-Cam, said yesterday. “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.”
AOL, based in New York, has hired Evercore Partners Inc. (EVR:US) to explore strategic options and find a buyer for its more than 800 patents. While Starboard has said the portfolio may yield more than $1 billion in licensing income, some of AOL’s patents are variations on existing technologies that companies, including Google Inc., could license from others, Pratt said.
The ceiling price of $290 million for the patents reflects a “Google-like transaction,” Pratt said, referring to the search company’s proposed $12.5 billion purchase of Motorola Mobility Holdings Inc., from which it could draw on more than 17,000 patents.
A lower valuation on AOL’s patents could hurt the company’s chances to generate enough dollars to spur a sale of the whole company, Pratt said.
Caroline Campbell, a spokeswoman for AOL, declined to comment.
AOL fell 1.8 percent to $18.95 at 10:30 a.m. in New York. The stock had gained 28 percent this year before today.
Evercore is also helping AOL explore other strategic options. Private-equity firms, including Providence Equity Partners Inc., TPG Capital and Silver Lake, have approached AOL about taking the company private, yet those overtures haven’t resulted in a deal, according to people with knowledge of the situation.
A strategic buyer could bid a much higher price for the patents than M-Cam’s estimate, said Erin-Michael Gill, chief intellectual property officer for MDB Capital Group LLC.
“There’s a difference between a pure financial value for patents and a strategic value,” Gill said by telephone yesterday. “A strategic buyer could bid higher because they realize the long-term value of licensing those patents.”
Many of AOL’s patents cover Internet advertising and communications services, and the portfolio could fetch as much as $1 billion from a large technology company, Christopher Marlett, co-founder of Santa Monica, California-based MDB, said last week.
AOL, led by Chief Executive Officer Tim Armstrong, posted declining sales for each quarter last year. The company’s revenue for the first quarter of this year is estimated to drop 4.6 percent to $526.1 million, according to analyst projections compiled by Bloomberg.
Armstrong had been in talks with private-equity firms as recently as September, when the CEO approached potential financial partners about combining AOL with Yahoo! Inc. (YHOO:US), two people said at the time.
Starboard, which increased its stake to 5.2 percent from 4.5 percent late last year, said in a Feb. 24 statement that it’s “increasingly uncomfortable” with the direction the company and the board leadership are taking.
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