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On2 Technologies (s ont) shareholders have filed lawsuits in New York and Delaware in an attempt to block the company’s acquisition by Google (s goog). 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 (s adbe) 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.