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Breaking: Google And On2 Technologies Revise Merger Agreement

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In August 2009, Google announced that it had agreed to acquire On2 Technologies for – then – roughly $106 million. At the end of last year, On2 – not for the first time – postponed a meeting at which it had hoped to get shareholder approval for its purchase by Google.

A new shareholder meeting is scheduled for February 2010, but this morning Google and On2 released a joint press release announcing a deal to amend the merger agreement.

Under the revised terms, each outstanding share of On2 common stock will receive 0.0010 of a share of Google Class A Common Stock for each share of On2 common stock, as previously announced, plus an additional $0.15 per share in cash. This would increase the deal size to roughly $133 million, or about $26.5 million on top of the previous offer.

Google and On2 had initially said they expected the merger to be completed by the fourth quarter of 2009. If the deal is not completed by March 31 2010, either party can terminate it.

Right after the initial announcement was made, several On2 investors sued the company, alleging that management had not shopped the company around to get the best price and that it had sold at a discount of what it was actually worth. The lawsuits were settled by On2 in late October 2009.

The companies say the revisions to the terms serve to address the fact that the market value of Google’s Class A Common Stock has increased significantly since the initial merger announcement was made last August, while the value of the acquisition has remained fixed for On2’s stockholders. By increasing the consideration by an additional $0.15 per share in cash, On2’s stockholders are to receive additional value for their On2 common stock.

At the reconvened Special Meeting, scheduled for February 17, On2 common stock holders will be asked to vote upon the merger proposal and the adjournment proposal as set forth in the SEC proxy statement/prospectus that will be filed by Google shortly.

Google says this offer is final.

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