Seeking More Money from Google, On2 Shareholders File Suits

It’s worth remembering that before Google announced its acquisition bid for video-comopression specialist On2 Technologies earlier this month, the latter was listed as a veritable penny stock, with the types of shareholders those listings tend to attract. On2 was a volatile stock, getting yanked upward and pulled downward with the emotions and machinations of its stockholders.

During the last six months, the company’s listing closed trading days as low as 20 cents per share and as high as 60 cents per share. Most observers would concede that’s a pretty wide range, with plenty of peaks and valleys. The stock chart looks as though it could serve as the design blueprint for a decent roller-coaster.

At least some of On2’s shareholders have formally objected to Google’s $106.5-million offer for On2. They want more money, and they’ve gone to court, with an injunction, to press their case.

Their two suits, as reported by Reuters and others, were filed against On2’s board of directors and Google in Delaware Chancery Court on Monday. They seek class-action status, as well as a permanent injunction blocking the deal. The suits also called on the defendants, Google included, to account for all damages caused.

Google could make the issue go away, of course, by tossing more filthy lucre at the litigants and freeing the On2 board from these allegations of breaching their fiduciary duty. In fact, it’s extremely likely that this matter will be settled out of court.

Still, looking at that six-month chart, I have to wonder how far these dissatisfied On2 shareholders want to go with this matter. The stock had not closed above 60 cents in any trading day during the last six months, and it had ended two trading days near 20 cents per share.

On2 announced strong quarterly results the day after the announced acquisition. Those results served as the ostensible catalyst for the shareholder revolt.

According to the Reuters report:

Google’s offer of 60 cents a share represents a 57 percent premium from the closing price of On2’s stock on the last trading day before the announcement. According to the suit, however, the price is well below the level where On2’s stock traded in the few months prior to the proposed transaction.

The suit alleges that, on May 13, On2’s stock traded at 65 cents. The shares reached $1.16 in 2008, according to the suit.

According to Reuters data, On2’s shares began the second quarter at about 30 cents and ended it at above 40 cents.

So, with the favorable results factored into the equation, the disgruntled shareholders contend that On2’s board of directors should have cut a better deal. That’s a subjective opinion, not a dispassionate analysis, and I’m not sure those who filed the suit will want to roll the dice in a court of law. Then again, as noted above, it likely won’t get that far.

As usual, the lawyers will emerge with some gains from their endeavors as sideshow impresarios.

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