eBay Sues Craigslist for Stock Dilution
By way of background, eBay bought more than a quarter of craigslist’s stock (28.4%) back in 2004. According to the suit, this January, unnamed “unilateral actions” by founder Craig Newmark, CEO Jim Buckmaster and/or the craigslist company itself diluted eBay’s shares, diminishing the power that eBay should wield by an alleged 10%.
eBay says that the unnamed actions were unethical and unfair, in addition to being a “breach” of the company’s “fiduciary duties.” citing their good history with craigslist, eBay expressed dismay at the recent developments:
[W]e have acted openly and in good faith as a minority shareholder, so we were surprised by these recent unilateral actions.
The suit, filed in a Delaware Chancery Court, is sealed to keep confidentiality restrictions between the companies intact. eBay hopes the court will rescind the January actions.
Craigslist reacted in a blog post, using some of the same language that eBay did:
We are surprised and disappointed by Ebay’s unfounded allegations, which came to us out of the blue, without any attempt to engage in a dialogue with us.
They continue, citing eBay’s own 2007 classifieds startup, Kijiji, as a possible motivation:
Coming from a shareholder that views craigslist as a prime competitor, filing suit without so much as mentioning these assertions beforehand seems unethical, and hints at ulterior motives.
Ensuring the future well-being of craigslist and the craigslist community is admittedly very important to us. But Ebay has absolutely no reason to feel threatened here — unless of course they’re contemplating a hostile takeover of craigslist [unlikely, since the company isn’t public], or the sale of Ebay’s stake in craigslist to an unfriendly party. (In which case, they’re out of luck. [sic]
And when asked point blank whether the allegations were true, Craigslist said:
Addendum in response to commenter question – To be perfectly clear, Ebay’s stake in craigslist has not been unfairly diluted as they have claimed.
Without public information as to what craigslist’s January actions were, it’s easy to side with craigslist. But what do you think is really going on here?