Scrutiny grows on On2 bid process; Felix Resources buyout predicted to clear antitrust reviews

By Cristal Cody

Tupelo, Miss., Aug. 13 - Shareholders of On2 Technologies Inc. could get a price bump in the bid from Google Inc. if the company's board of directors did not conduct a competitive sale process, an analyst told Prospect News on Thursday.

Looking across the globe, Yanzhou Coal Mining Co. of China said Thursday it will buy Australian coal mining firm Felix Resources Co. Ltd. for about A$3.50 billion.

In small transactions on Thursday, shareholders of Steak n Shake Co. sent the casual dining restaurant operator's stock down 2.86% after it announced it will acquire Western Sizzlin Corp. in a $22.96 million deal.

Meanwhile on Wall Street, stocks continued to rally a day after the Federal Reserve offered a positive outlook on the economy.

The Dow Jones Industrial Average rose 36.58 points, or 0.39%, to close at 9,398.19.

The Standard & Poor's 500 index added 6.92 points, or 0.69%, to finish at 1,012.73, and the Nasdaq Composite index closed up 10.63 points, or 0.53%, at 2,009.35.

On2 bid process questioned

On2 investors filed two lawsuits against the company this week in the Delaware Court of Chancery and the Queens County Supreme Court of the State of New York arguing that Google's $106.50 million stock offer is too low for the video compression software company.

Google announced on Aug. 5 that each share of On2 will be converted into 60 cents' worth of Google stock.

Google and On2 representatives did not return calls for comment on Thursday.

On2 said in an 8-K filing with the Securities and Exchange Commission on Wednesday that the claims are without merit and it will "vigorously" fight the charges.

On2 said when the deal was announced that Covington Associates, LLC as financial adviser and Duff & Phelps, LLC as independent financial adviser helped the board of directors determine the offer's fairness.

An analyst said Thursday that Google has plenty of time to seal the deal because settlement is not expected until December.

"Google has savvy folks on the legal side, and they must have accounted for that level of disruption moving forward," the analyst said. "They have enough time from now until December to figure that out."

But if On2's board did not conduct a competitive bid process, then it's another story.

"When you get an offer, the board usually shops around for a better deal," the analyst said. "We don't know if they actually did or not, but that would be a point of whether this price was fair or not. We don't know the details on that yet."

The transaction also requires approval from On2 shareholders. The company has not scheduled a date for a stockholders meeting.

Mountain View, Calif.-based Google said in a statement when the deal was announced that On2 will help it improve its internet video quality. The Clifton Park, N.Y.-based company's technology is used in desktop and mobile applications, and customers include Adobe Systems Inc., Skype Technologies SA and Sun Microsystems Inc.

On2 shares closed off 0.05% at 58 cents on Thursday. The stock has traded from 11 cents to 65 cents in the past 52 weeks.

Google shares added $3.70, or 0.81%, to close at $462.28.

China mines Australian coal

Meanwhile in the Eastern Hemisphere, a market source said regulatory reviews are expected from Australia's Foreign Investment Review Board over Yanzhou's A$18.00-a-share bid for Felix, but the deal likely will get the go-ahead.

"Although possible, we do not expect FIRB [or] the Australian treasurer to block the transaction," the source said. "We believe that there has been no concerns raised by FIRB in the sale of coal assets recently. However, we do not totally rule out the possibility of political opposition to such a transaction."

The proposal includes A$16.95 a share in cash, a dividend of A$1.00 per share paid on Oct. 30 from Felix's cash reserves and a dividend of A$0.05 a share from the spinoff of Felix's SA Coal unit.

Yanzhou, eastern China's largest coal producer, said in a statement on Thursday that the deal should close by December.

Felix has been trying to sell itself since July 2008, so shareholders are expected to approve the offer, the market source said.

Trading in the companies' stock was halted on Monday in anticipation of a deal announcement. Shares were expected to resume trading Friday.

Western Sizzlin finds new home

Steak n Shake's stock fell 32 cents to close at $10.85 on Thursday, while shares of steak chain Western Sizzlin's stock climbed $1.25, or 9.80%, to $14.00.

Western Sizzlin's stock has traded from $6.02 to $16.45 over the past year.

Under Steak n Shake's offer, Western Sizzlin shares will be converted into the right to receive an amount equal to $8.11 each in the principal amount of debentures issued by Steak n Shake.

The debentures are expected to have a five-year term and bear a 14.00% interest rate, the companies said in a statement.

The offer must be approved by Western Sizzlin shareholders.

The Indianapolis-based Steak n Shake burger chain operates 486 restaurants in 21 states. Roanoke, Va.-based Western Sizzlin operates and franchises 110 restaurants in 19 states.

Mentioned in this article:

Felix Resources Ltd. Australia: FLX

Google Inc. Nasdaq: GOOG

On2 Technologies Inc. Amex: ONT

Steak n Shake Co. NYSE: SNS

Western Sizzlin Corp. Nasdaq: WEST

Yanzhou Coal Mining Co. Hong Kong: 1171

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