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On2 deal born at sales meeting: Licensing agreement talks led to offer from Google for company [Albany Times Union, N.Y.]
[September 16, 2009]

On2 deal born at sales meeting: Licensing agreement talks led to offer from Google for company [Albany Times Union, N.Y.]


(Times Union (Albany, NY) Via Acquire Media NewsEdge) Sep. 16--HALFMOON -- Google's surprise deal last month to acquire the Halfmoon video software company On2 Technologies Inc. for $106.5 million in stock was hatched in March at a sales meeting in New York City.



On2, which makes cutting-edge video compression software, had been in discussions with Google for months about licensing its software to the Mountain View, Calif., company or entering into a joint development agreement, according to details of the deal filed last Friday with the U.S. Securities and Exchange Commission.

It was on March 6 that Google executives first broached the idea of the sale, terms of which have angered many On2 shareholders who believe they aren't getting enough from Google in the deal, which values On2's shares at 60 cents each.


But the SEC filing reveals that Google first proposed much less than that -- between 45 and 50 cents per share.

And as negotiations progressed, On2 board members sought as much as 90 cents a share from Google,which would have valued the deal at about $160 million.

Google provided the On2 board with a written offer of 60 cents cash per share on May 20, and five days later the board countered with an offer of 65 cents -- to be paid in Google stock.

Google wouldn't budge, although on June 5 it revised its offer, saying the 60 cents per share could be payable in either cash or Google stock. The final decision was to use Google stock, although fractional shares are paid in cash.

On Aug. 4, the day before the deal was announced, On2 shares traded at 38 cents; Google's offer is a premium of 57 percent.

The deal also includes a $2 million termination fee if On2's board decides to back out of the deal.

Since last month's announcement, five shareholder lawsuits have been filed in New York and Delaware seeking to stop the deal.

Google's filing last Friday with the SEC is a preliminary proxy statement that will eventually be sent out to On2 shareholders asking them to vote on the merger.

Larry Rulison can be reached at 454-5504 or by e-mail at lrulison@timesunion.com.

To see more of the Albany Times Union, or to subscribe to the newspaper, go to http://www.timesunion.com.

Copyright (c) 2009, Albany Times Union, N.Y.

Distributed by McClatchy-Tribune Information Services.

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