On2 Shareholders File Lawsuits to Block Google Acquisition

While many of us in the industry have been trying to figure out what exactly Google (GOOG) will do with On2 (ONT) after the acquisition, we may be getting ahead of ourselves. Some On2 investors have filed separate lawsuits in New York and Delaware looking to block the acquisition, claiming that On2's board essentially agreed not to shop the company around and look for a higher price. Many of On2's investors are already banding together to stop the deal and have launched a website at Vote4On2.com to make their opinions heard.

While Google announced the deal would close in the fourth quarter of this year, they have yet to announced a date for when On2 shareholders will vote on the deal. Google has agreed to acquire On2 for $0.60 a share but the vast majority of On2 shareholders I have spoken to since the announcement think the company is worth a lot more than that and have said they will vote down the deal.

With On2 on a run rate to do around $20M in revenue for 2009, Google's offering price of $0.60 a share puts the deal at $106.5M, or roughly five times revenue, which is not a bad multiple. While I don't know if On2 is worth more than Google is offering and am not a shareholder in any public company, from what I can tell, it sounds like Google may have a real fight on its hands from a large percentage of On2 shareholders.

As of April 7th 2009, there were 175,510,794 shares of On2 common stock outstanding and current directors and named executives only owned 6,001,222 shares, or about 3.33% according to a proxy statement. If all of the individual investors who have voted down the deal on Vote4on2.com do in fact own the number of shares they list, as of today they represent 37,716,990 shares or about 20% of the total outstanding shares in the market.

If there is one thing I have learned about many On2 shareholders in the past it's that they are very opinionated, do a good job of talking to one another and sharing info, are very aggressive in trying to get their message across and always seem to be up for a fight. Not something that works very well on a blog, but maybe just exactly the kind of thing needed to block the acquisition by Google or get Google to raise their offer price.

Disclosure: No position

Comments

[FAFUFNIK:]

very shallow item by Mr. Rayburn, adds nothing to readers' knowledge of the situation and the negative tone of some remarks reflect the long term dislike of Ont investors and the company they are invested in. I have read many negative posts regarding his lack of fairness and objectivity regarding this topic over the years--this is the first time I am adding my voice to those and calling on him to do his homework before editorializing about a situation which he has never studied enough to hold forth on it with any degree of creditility.
For starters, he could do some studying of the history of High Frequency Compudterized Trading and naked short selling controlling the; price of the stock since the change in the Uptick rule which unleashed the unabated attack by unknown entities which culminated in the setting of the price of the stock at a level which distorted the sale price far beyond what a true picture of the real investor (as opposed to manipulator) supply and demand, if not prevented by the aforesaid, would be.
It would be a true service to his readers if he were to spend some time and effort to look into the background of this whole matter rather than just spinning off a quick, superficial blurb to fill some vacant space on this site.
Could you, Mr. Rayburn, contribute, to the common good, an in- depth, based on some research, article on the disastrous effect of HFCT and naked short selling on all investors in a market which has been advertised as " FAIR, OPEN AND HONEST". I read of a university study last week claiming that HFCT is now responsible for 70% of the trading on the stock market and that once the government extension of benefits to workers and other similar temporary increases in spendable cash by citizens later this Fall ends, that this 70% will disappear. The end result, they claim, will be another disaster in the markets with only the remaining 30% of traders left to feed the action and a resultant severe drop in the values of the stocks traded. This is extremely scary and its import is far bigger than On2 and Google for, not just us investors, but for the whole country and world. I
This is a serious request and I would love to read more about it from you and other commentators on the markets. Thank you.

Aug 13 10:50 AM

[Dan Rayburn:]

No clue what you are talking about. My post is simply reporting the news that is taking place. It's not my job to decide if the lawsuit is fair, what the value should be or what is taking place in the market on a larger scale in regards to your rant about "short selling".

Aug 13 12:42 PM

[VISUALPLANT:]

Google's interest in On2 is foremost for cost-reduction. If Google currently pays licensing fees to MPEG LA for the vast volume of transcoding to support YouTube, they stand to save a lot by switching to On2 VP8 once it is owned by them. Due to the complexity of constituents and committee rule, MPEG LA was not an acquirable entity, but On2 is – that is, given the acquisition is not derailed by the investors. If it goes through, H.264's future as a standard could be in question.

Sep 01 11:09 PM