On2 Shareholders File Lawsuits to Block Google Acquisition

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 |  Includes: GOOG, ONT
by: Dan Rayburn

While many of us in the industry have been trying to figure out what exactly Google (NASDAQ: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