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Summary:

On2 Technologies shareholders have filed lawsuits in New York and Delaware in an attempt to block the company’s acquisition by Google. The plaintiffs complain that the company is worth more than the $106.5 million, or 60 cents a share, being offered. On2 develops video codecs that […]

on2_shareholder_dissent

On2 Technologies shareholders have filed lawsuits in New York and Delaware in an attempt to block the company’s acquisition by Google. The plaintiffs complain that the company is worth more than the $106.5 million, or 60 cents a share, being offered. On2 develops video codecs that are widely used in Flash video, and owning the company would give Google backdoor savings on software licensing fees from companies such as Adobe and access to On2′s code, allowing engineers at the Googleplex to further optimize its encoding algorithms.

Shareholders have set up a web site, “Vote No To Google’s Current Offer for On2,” with those representing as much as 20 percent of the voting interest in the company having pledged to kill the deal. Google had hoped to close the deal by the end of this year.

The main points of the complaint are that On2 didn’t shop the company around for the best possible price; that the share price at the time of the announcement was depressed by market volatility, calling into question whether offered price actually represents a 57 percent premium; and that the executive compensation and layoff severance package plans represent a “poison pill” that would discourage a sale to other buyers while enriching top management — who hold less than 4 percent of the voting shares.

The $106.5 million seems a pittance for Google, which has $19.3 billion in cash to play with, and even moreso when you consider what the company might be able to save. If On2′s codec was even one percent more efficient in compressing video, Google could probably save millions a month in bandwidth and storage costs for its YouTube subsidiary, not to mention the money Adobe would have to pay Google to license the codec for Flash.

My guess? Another hundred million and the shareholders will put down the torches and pitchforks.

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  2. [...] On2 Shareholders Demand More Money From Google – Newteevee.comShareholders have set up a web site, “ Vote No To Google’s Current Offer for On2 ,” with those representing as much as 20 percent of the voting interest in the company having pledged to kill the deal. Google had hoped to close the deal by the [...]

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  3. And how much is On2 worth if the shareholders succeed in convincing Google to develop their own open source codec and share it with Adobe? Another $100M buys an awful lot of open source codec development.

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    1. But it doesn’t buy calendar. $100M is like purchasing a time machine and they get all the work On2 has done in the stroke of a pen. Also, there is little development risk involved.

      The company is publicly traded. The free market determines what On2 is worth on a minute by minute basis. (Currently $103.55M)

      Bulls make money, Bears make money and Pigs get slaughtered. It looks like these shareholders are valuing potential future revenue much higher than the market does. Taking a page out of Jerry Yang’s Book of “How to Screw up a Sure Thing”, these shareholders should cut and run. If they are really nervous about missing out on Google’s leveraging power with their technology they should take the money they make on their buyout and invest it in Google.

      TK

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  4. Jon, I’d love to see Google try to develop their own open source codec that doesn’t infringe on any patents. Yeah good luck with that.

    Time Keeper. On2′s stock was heavily shorted and covered. On2′s CEO even said the following”

    November 6, 2008 – 5:00 PM Eastern
    Third Quarter 2008 Results Conference Call

    On2 CEO : “We are not positioning ourselves to be bought out. There is a lot more value in On2 than currently reflected in our market cap. I can say with great assurance that is not what we are trying to do.”

    On Thursday August 6, 2009
    On2 Technologies Announces Financial Results For Second Quarter of 2009

    “Matt Frost, interim CEO of On2, said the company delivered our strongest revenue performance in six quarters.

    So did the value in On2 suddenly drop after their best performance in six quarters? Maybe they are just getting tired of running the show with all of the headaches and wanted some nice fat bonuses and cushy jobs at Google but where is the share holder value in that?

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  5. Jon, I’d love to see Google try to develop their own open source codec that doesn’t infringe on any patents. Yeah good luck with that.

    Time Keeper. On2′s stock was heavily shorted and covered. On2′s CEO even said the following”

    November 6, 2008 – 5:00 PM Eastern
    Third Quarter 2008 Results Conference Call

    On2 CEO : “We are not positioning ourselves to be bought out. There is a lot more value in On2 than currently reflected in our market cap. I can say with great assurance that is not what we are trying to do.”

    On Thursday August 6, 2009
    On2 Technologies Announces Financial Results For Second Quarter of 2009

    “Matt Frost, interim CEO of On2, said the company delivered our strongest revenue performance in six quarters.

    So did the value in On2 suddenly drop after their best performance in six quarters? Maybe they are just getting tired of running the show with all of the headaches and wanted some nice fat bonuses and cushy jobs at Google but where is the share holder value in that?
    BTW I love your blog!

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