Google (GOOG) is using its stock to buy video-compression company On2 Technologies (ONT) in a transaction valued at $106.5 million.

On2's stock will be converted to 60 cents worth of Google's common stock in a stock-for-stock transaction, the companies said in a press release today. That's a 57 percent premium over On2's most recent closing stock price. On2's shares, which closed at about 39 cents yesterday, are up more than 50 percent in today's trading.
The deal appears to benefit Google-owned video sites YouTube and Google Video. Jeremy Doig, engineering director of video, and Mike Jazayeri, group product manager, write on The Official Google Blog that On2 Technologies will help Google innovate and improve the quality of the video experience for its online users.

"On2's team and technology will help us further that goal," said Sundar Pichai, Google's vice president of product management, in the release. "We believe high-quality video compression technology should be a part of the web platform."

Doig and Jazayeri wrote that Google is "not in a position to discuss specific product plans until after the deal closes." On2 says in the statement that it will continue to improve, support and sell its products throughout the transition.

The transaction is expected to close in the fourth quarter 2009, On2 wrote, pending On2 stockholder approval, regulatory clearances, and other closing conditions.

Anthony Massucci is a senior writer for DailyFinance. You may follow him on Twitter at hianthony.