Tag: ONT

Will Google land On2?

Brenon Daly

Contact: Brenon Daly

At this rate, Google may never again go shopping on the public market. Its contentious reach for On2 Technologies, which has been bogged down for a half-year, will come to some kind of resolution after the close of the market today, with shareholders of the video compression software vendor set to vote on Google’s $136m offer. While Google has acquired nearly 50 companies in its history, the proposed purchase of Amex-listed On2 is the first time the search giant has bid for a public company.

When Google initially announced the planned purchase back in early August, it said it hoped to close the deal in the fourth quarter. (As an aside, we’d note that since the original announcement, Google has picked up six private companies, all of them without the drama that has surrounded the proposed On2 acquisition.) The target deadline came and went, and then in early January, Google said it was adding a cash kicker to its original all-equity bid for On2.

Google’s first offer of roughly $106m of its shares for On2 hadn’t drawn enough support from On2’s shareholders. So, the deep-pocketed buyer reached a bit deeper into its pockets to add a $26m all-cash sweetener. Google says the $136m bid is its ‘final’ offer. On2’s board of directors, as well as the three main proxy advisory firms, have all urged the vendor’s shareholders to vote for Google’s proposed purchase this afternoon.

A first for Google: reaching for a public company

Brenon Daly

Contact: Brenon Daly

In the five years since Google went public, the serial shopper has picked up some 40 other companies. It has bought its way into security, collaboration software, mapping, video and voice, among other areas. And it has inked deals ranging from the low seven figures all the way up to $3.1bn for DoubleClick. But in all of its shopping, Google had never reached for a fellow public company. That changed Wednesday with the search giant’s announced $106m purchase of Amex-listed On2 Technologies. The transaction is expected to close by the end of the year.

Fittingly for a vendor that hangs ‘beta’ tags on products for years, Google didn’t immediately indicate its plans for On2. But we suspect that the video compression technology that On2 developed could well come in handy to lower bandwidth costs and sharpen up the performance of Google’s YouTube property, for instance. (Whatever the strategy, we’re pretty confident that the deal was a pure technology acquisition. Google certainly didn’t snag On2 for its financial performance. Money-burning On2, which has rung up an impressive $183m in accumulated deficit since its founding in 1992, has had negative working capital so far this year.)

As an aside, we would note that there are actually a few ties between Google’s YouTube buy and its pending pickup of On2. Both transactions are the only ones we’re aware of where Google used its own equity to cover the purchase price. (For those On2 shareholders who might be curious, Google shares have handily outperformed the market since the vendor handed over $1.65bn worth of stock to YouTube owners. Google shares are up about 12% since the company announced the YouTube deal in October 2006, compared to a 12% decline in the Nasdaq over that period.) Also, even though Google rarely uses a sell-side adviser, Credit Suisse Securities banked the search giant in both deals. In fact, we understand that the same banker, Credit Suisse’s Storm Duncan, handled the two acquisitions. Duncan worked across the table from Covington Associates’ Tom Cibotti, who advised On2.