Shareholders Sue To Block Google's On2 Acquisition
August 12 2009 - 4:25PM
Dow Jones News
Google Inc.'s (GOOG) acquisition of video compression software
maker On2 Technologies Inc. (ONT) has been challenged in court by
On2 shareholders who claim the deal's $106.5 million price tag is
"unfair."
The complaint, filed in Delaware Court of Chancery on Monday,
seeks class action status and a permanent injunction blocking the
deal. The plaintiffs also demand that the defendants, which include
On2's board as well as Google, account for all damages caused.
The Mountain View, Calif.-based search giant announced the deal
last week in a bid to buttress its video operations, most notably
YouTube. On2's video-compression technology would enable Google to
boost the speed and lower the cost of transferring large video
files across the Web.
Clifton Park, N.Y.-based On2 also produces software that helps
make high-definition video playback possible on mobile devices.
That technology could make its way into Google's Android mobile
operating system and its Chrome operating system for PCs.
Google declined to comment on the complaint. On2 wasn't
immediately available for comment.
Under the terms of the deal, each On2 share will be converted
into 60 cents in Google stock, representing a 57% premium over the
closing price for On2's shares on the day before the deal was
announced.
The complaint argues that prior to the transaction, On2's stock
had been trading "well in excess" of 60 cents, hitting 65 cents as
recently as May 13, 2009, and reaching $1.16 in 2008.
The complaint alleges that ON2 management and Google rushed to
announce the deal just one day before the small software company
reported its best quarterly financial results in six quarters.
"Defendants rushed to announce the proposed transaction at $0.60
per share on Aug. 5 ahead of the positive earnings results
announced the next day, thereby placing a cap on the company's
stock price to the detriment of On2 shareholders," the complaint
said.
The complaint also alleges that various terms of the agreement,
including a "no shop" provision and a $2 million termination fee if
On2's board accepts a superior offer, all but ensure that no
competing offers will emerge.
On2 last week announced a loss of $224,000 for the quarter on $5
million in revenue. The company would have reported a profit if not
for $420,000 in legal fees associated with the Google
transaction.
-By Scott Morrison, Dow Jones Newswires; 415-765-6118;
scott.morrison@dowjones.com