Google to Pay $106.5 Million for Video Firm On2

By Tim Mullaney

Aug. 5 (Bloomberg) — Google Inc. agreed to buy On2 Technologies Inc. for $106.5 million, bolstering its YouTube site with software that compresses video clips so they are easier to download.

On2 investors will get 60 cents in Google stock for each share they own, Mountain View, California-based Google said today in a statement. That’s 57 percent more than On2’s closing price yesterday on the American Stock Exchange.

The acquisition is the first announced by Google since September, according to data compiled by Bloomberg. Chief Financial Officer Patrick Pichette has pressed managers to only make deals that have a clear payoff, said Sameet Sinha, an analyst at JMP Securities Inc. in San Francisco.

“YouTube’s bandwidth costs are high, and compression technologies help you reduce the bandwidth any video uses,” said Sinha, who predicts Google shares will outperform their peers and doesn’t own the stock. On2 may let Google incorporate video-compression software into mobile phones that use its Android software, he said.

On2’s customers include Nokia Oyj, Sony Corp. and Adobe Systems Inc. The purchase is expected to close in the fourth quarter. On2 shareholders and regulators must approve the deal before it can be completed, the companies said.

On2, based in Clifton Park, New York, rose 19 cents, or 49 percent, to 57 cents today at 10:04 a.m. New York time on the American Stock Exchange. The shares had jumped 91 percent this year before today. Google fell $3.48 to $450.25, and had advanced 47 percent this year though yesterday.

Last Updated: August 5, 2009 10:07 EDT

taken from bloomberg.com 8-5-09