updated 8/5/2009 10:34:03 AM ET 2009-08-05T14:34:03

Google says it plans to acquire On2 Technologies, a provider of digital video compression technology, in an all-stock deal valued at $106.5 million.

On2 helps shrink video files so they can be sent more easily across the Web, an increasingly important technology as the volume of online video grows rapidly.

Mountain View, Calif.-based Google, which owns the popular video sharing site YouTube, says On2 shareholders will receive 60 cents worth of Google class A common shares for each outstanding share of On2 they hold. That represents a 57 percent premium to the Clifton Park, N.Y., company's closing price Tuesday.

Sundar Pichai, Google's vice president for product management said Wednesday in a statement, "Today video is an essential part of the Web experience, and we believe high-quality video compression technology should be a part of the Web platform."

Google expects the deal to close in the fourth quarter.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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