The offer was jointly announced by both companies on August 5, 2009, a mere 32 hours before On2 would report record Q2 revenues and minus costs associated with the proposed merger, their first profitable quarter ever. Google's proposed acquisition of On2 is still subject to shareholder approval. Meanwhile, On2 just reported record Q3 revenues and again minus proposed merger costs, a second profitable quarter.
The shareholder group states, "While we understand Google's intent and the implicit validation of On2's employees, products, and intellectual property (IP) portfolio, we are extremely disappointed in the offered price. The manner and timing by which recent material corporate developments have not been made public, especially in light of On2’s brightening prospects, as well as the long history of On2’s share price manipulation lead us to believe this deal is not fairly valuing On2 Technologies.”
On2 shares traded for as high as $3.99 in May 2007 only to come under attack by both legal shorting and alleged illegal price manipulation and naked shorting that continued to plague the stock price as recently as the Google offer was announced. The suspicious trading patterns have been brought to the attention of state and federal regulatory bodies. The On2 shareholder group argues that the recent share price, used as the basis for Google’s offer, should never have been applied as a valuation metric because of the obvious and well documented manipulation of the stock in the public markets.
Shareholders have been shocked by how few newsworthy items have been announced to the market including the signing of several new significant customers for On2’s latest flagship video codec, VP8. On2 has already reported VP8-based revenues and these customer announcements would have produced very positive share price appreciation. Also, the non-formal disclosure of a material event which occurred in Q2 whereby the Finnish Government forgave On2 a $669,000 debt owed that went straight to the bottom line improving the balance sheet, yet the information and reasons behind this transaction were not disclosed. Communications from the company have been silenced and it was only through the Form 8-K announcing Q3 earnings that shareholders learned that a top 5 semiconductor company had signed a $1.4 million Hantro licensing contract. Several additional examples from the past year could be cited, but On2’s corporate silence has denied shareholders fair disclosure, resulting in lost opportunity for an improved valuation.
Shareholders feel justified in their belief that the company's shares are worth much more than the $0.60/share offered. On2 is on the cusp of exponential growth in device video, one of the most explosive sectors in technology. Their VP8 product is a game changer in video transmission and is just now being introduced. On2’s codecs have recently become the de facto standard in China, the largest video market on the planet. Additionally, On2 codecs are ubiquitous to online video through its use in Adobe Flash, JavaFX and by many large video content providers world-wide. On2 holds 10 U.S. patents with 14 pending while Hantro (acquired by On2 for $60 million in 2007) holds 8 patents with 12 pending. On2 owns the IP behind VP8, the new codec technology that On2 promotes as being much more efficient by providing higher quality at lower band-width utilization than H.264, its closest competitor. On2 codecs and Hantro hardware accelerations are now a key feature on many mobile video devices and smart phones—a significant area of growth and the real future of video in the coming years.
The group would like to stress that they are not strictly opposed to selling their shares to Google or to any other bidder, but believe the strategic value of On2’s technology is worth much more than the current offer. Quite clearly, the challenge to Google’s acquisition is NOT settled, in fact it has just begun. Our group of shareholders of On2 Technologies (AMEX:ONT) firmly opposes Google’s $0.60/share offer. At this time, the group currently has no formal affiliation with any litigation against On2 executives or initiatives launched to block a reasonable offer. For more information, shareholders can visit www.vote4on2.com where they may register an “unofficial NO vote” of their shares in advance of the formal proxy. A group representative can be reached via email at shareholdersofon2@
