SEC Watch: The Story Of Google's Offer For On2

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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