Google's On2 Acquisition Hindered by Lawsuits

The $106.5 million deal may be blocked by disgruntled shareholders

The acquisition of the On2 video technology company that Google announced last week may not go as smoothly as first hoped, as many On2 shareholders are dissatisfied with the terms of the deal. Despite Google having offered a 57 percent premium on the closing price of the shares the day before it was announced, some shareholders have filed two separate lawsuits in New York and Delaware to block the transaction.

The Internet giant offered $106.5 million to buy the video technology company, paying 60 cents per share while market price closed at 38 cents per share the previous day. The suits claim, though, that the price isn't representative for the company and was caused by turmoil in the market, with On2 shares trading as recently as May for 65 cents and going as high as $1.16 in 2008. Another complaint is that On2's board of directors rushed to get the deal signed before announcing the second quarter financial results the following day. The results were, in fact, the best for the company in the previous six quarters and many believe they could have had a significant impact on both the share price in the financial market as well as the price offered by Google.

The disgruntled shareholders also accuse the board of not looking at other investors and of signing prohibitive "no shop" and "standstill" provisions, which block it from taking higher offers from other companies. However, the executives claim that other factors beyond share price were considered, like the value of Google shares and the fact that the deal is with one of the world's leading tech companies, promising more details in the upcoming SEC filing.

The lawsuits became apparent last week during the company's earnings call when several shareholders had less than laudatory words for the deal. Coupled with the lack of cooperation from the executives, it led to a lawsuit threat from one of the investors. Google declined to comment on the lawsuits while On2 hasn't responded. The plaintiffs are seeking class action status for the Delaware lawsuit as well as an injunction blocking the deal. The suit also claims damages from the defendants.

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