Google Adds Another $26.5M To On2 Bid: Don’t Think It’s Enough To Go Through

In December, On2 put out more details on their proposed merger with Google in an attempt to get On2 shareholders to be more comfortable with the deal, hoping that they would approve it when it was voted on last month. Since that tactic failed and the company didn't have enough votes to approve the merger, Google has now decided to up their offer for On2 by adding $0.15 per share in cash consideration. Shareholders are now scheduled to vote on this offer on January February 17th.

Since I don't own stock in On2 or Google, or any other company for that matter, and don't have enough of a detailed insight into On2's intellectual property, I can't say what the company is really worth. But the gut feeling I have on this one is that if the deal was going to go through, it would of already. Simply adding $0.15 per share to the deal probably won't convince too many shareholders who voted no in the past to change their mind. Even with the additional fifteen cents, most of the investors shares are probably under water.

In the press release, it says that this, "constitutes Google’s final offer", which is leading some On2 investors to think that a new suitor will now step forth in an effort to buy the company since they know Google won't bid any higher. Why that sounds nice in theory, it really does not make a lot of sense. If another company was interested, they would have come forth already. Microsoft does not need On2, so the idea that Microsoft should buy them just to keep Google from getting them does not make sense either. And when Google made their first offer, didn't they also say back then that it was their "final offer"?

The vast majority of On2's legacy business is based off of a codec. Yes, the company does a lot more than that just produce VP6 and VP8, but trying to grow a business off of a codec is very difficult. A similar analogy would be BitTorrent who for years has tried to create a business simply based on a protocol. How well has that worked out? It's not an easy thing to do. Just ask Move Networks.

Many of the On2 shareholders I hear from often, which is quite a few, all say they are holding out to "get a fair price" which they say can only come from competitive bidding. While I understand the idea, at some point On2 shareholders are going to have to come to the realization that right now, no other company wants to buy On2. That's not to say another company won't want to buy On2 down the road or that other opportunities may come the company's way if the Google deal falls through, but right now there is no other buyer.

By Google adding fifteen cents per share to the deal, it may be just enough to get shareholders who were only a couple of cents from breaking even to now vote yes. It's possible, but I still get the sense that it won't be enough to make the deal happen. We'll find out on the 17th.


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