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Summary:

An SEC filing includes the backstory of Google’s controversial offer to buy video compression firm On2 Technologies. Several groups of On2 s…

On2

An SEC filing includes the backstory of Google’s controversial offer to buy video compression firm On2 Technologies. Several groups of On2 shareholders have sued to block the deal, saying that On2’s directors did not try to find other buyers for the company and that they should have demanded a higher price from Google (NSDQ: GOOG). And, indeed, the filing shows that while On2’s board considered reaching out to other buyers, they were concerned that interested parties might share customers with On2 who might “react negatively” if they learned that On2 was for sale. Management therefore agreed to negotiate exclusively with Google for a fixed period. So, when an On2 engineer received an informal inquiry from an unnamed semiconductor company interested in making an acquisition in the space, On2 had to put off the meeting.

At the same time, the filing shows that, unsurprisingly, On2 executives did try to get a higher price for their business from Google. In April, Google representatives told On2 executives that they were willing to pay between 45 and 50 cents a share for On2. On2’s board countered by saying it was willing to consider accepting between 80 and 90 cents a share, but Google did not bite, offering 60 cents a share in either stock or cash instead — a price that the two sides ultimately agreed to.

Other tidbits from the filing: Three key On2 engineers will be compensated handsomely if they stay with Google for three years post-acquisition. On2 SVP of Core Technologies James Bankoski gets a $1 million bonus; SVP of Research and Development Paul Wilkins receives £600,000; and VP of Codec Develpment Yaowu Xu gets $840,000.

As for a termination fee, On2 will have to pay $2 million to Google if the deal does not go through.

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  1. The video business is exploding. Late last year On2 came out with their latest generation codec (faster than a silver bullet and able to leap tall buildings). On2’s board should not have had concerns about potential buyers or their customers. Shareholders were consistently told business was good…had enough cash. Google must have “locked on” to that new technology.
    Anyway…

    As background, the pps hit a closing high of $3.38 on May 18, 2007 after announcing that it was purchasing a Finnish company, Hantro and at approximately the same time the company announced that it was considering a reverse stock split which would further increase the pps allowing additional institutional investors access to the company.

    (By the way, just yesterday DivX announced a partnership with Hantro to develop hardware-based Intellectual Property (IP) video cores for mobile devices and set-top boxes (STB) that are capable of decoding high quality DivX Home Theater video.)

    At this point, the pps retreated from that closing high and eventually the reverse split possibility was dropped. It was during this period that the possible price manipulation and shorting took place. The stock experienced repeated presence on and off the Threshold List in May, June, and July of 2007 and then continuous listing on the SEC’s own REG SHO from July 2007 to January 2008 for persistent Fails To Deliver.

    The pps continued its downward spiral (to $.11 earlier this year), so that an offer of $.45 to $.50 to a casual observer would seem fair. Many prestigious companies had signed on as users of On2’s technology: Java, Adobe, Texas Instruments, Move Networks, Skype, and many others including Chinese internet companies.

    The shareholders are upset to say the least! The offer price was based on an artificially low (manipulated?) pps.

    On the very next day after the announcement of the merger with Google, August 6, On2 announced its first ever “break even” quarter on a per share basis….and if there had not been an expenditure of $420,000 for its anticipated merger with Google, the company would, indeed, had had the long awaited quarter in the black and be able to come into its own and have its price rise on its merits.

    Instead, the previous day’s announcement of the merger put a ceiling on the price of the stock (60 cents) effectively precluding stock holders from any future gains!

    I could continue, but I do not want this comment to appear extra long and time consuming.

  2. This isn't over, not by a long shot. ONT longs are fighting back, some of them don't care about the money they will lose in so doing. GOOG is a big evil giant running over small companies and their shareholders in order to become Master of the Universe. Meanwhile, most think this company is benign. Nothing could be further from the truth.

    Many believe that GOOG orchestrated the short attack on ONT and then formally entered when the price was low enough. In fact, many believe that GOOG has been in control of this company since the 'acting' CEO took over, Matt Frost, who had a clause inserted into his contract that would allow him to work from home four days a week. Now what CEO of a legitimately organized company would be allowed to work from home? Anybody?

    This is NOT over.

    J

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