Google (NASDAQ:GOOG) announced today that it will acquire On2 Technologies (ONT) for $106.5 million in an all stock deal. This is probably a great acquisition but the transaction type tells me something investors don't want to hear: I believe that Google stock may be over priced. Let me explain.
Google has a great balance sheet. The company has no debt with enough cash to fund cash-for-clunkers! Holding $19.34 billion in cash, it puzzled me to see Google use stocks to purchase On2. The acquiring price ($106.5 million) is only 0.55% of its total cash ($1,935 million).
If I own an asset which I believe is worth more than what the market tells me, I would be looking to trade that "paper" asset into "real" asset.
There are two ways of looking at it.
- Google is really smart and their stock should go up.
- Google stock may be over valued and it should go down.
You, as an investor, should pick which thesis fits you best.