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Why eBay Is Suing craigslist



The public version of eBay’s lawsuit against craigslist was filed this week, with a number of redactions (legal for ‘censored bits’) removed from the official filing, at the request of craigslist (which include the exact number of shares that eBay owns, the exact proportions of shares that others hold, etc.

paidContent offers a good synopsis of eBay’s accusations from the filing and the WSJ (which I will translate into English/a soap opera for those of us who are not financial wizards):

craigslist CEO Jim Buckmaster told [then-CEO of eBay] Meg Whitman last summer that [craigslist] wasn’t comfortable with [eBay's 28.4%] stake [in craigslist], and would “wish to explore options for our repurchase, or for otherwise finding a new home for these shares,” the lawsuit copy says. Whitman responded via e-mail last July with an offer to buy out craigslist, the lawsuit says. After that, the suit says that craigslist tried to adopt a poison pill provision, to fend off such a move by eBay. “Defendants’ actions are a thinly disguises stratagem to force eBay to sell its shares to them (or the Company they control) at below market price,” the suit says.

See? I told you this was the newest daytime drama to hit the Internet marketing news waves.

Clearly, what we have here is . . . well, really, a failure to communicate. (Name that movie.) Summer 07, craiglist tells eBay “Y’know, we’re not really right for one another. I know you’re stepping out on me. But it’s not you; it’s me. I want my stuff back.”

eBay responds with “Oh. Let’s get married.”

craigslist’s “poison pill provision” has less to do with arsenic and more to do with allowing existing shareholders, other than eBay, to purchase more shares at a reduced price. Thus, other shareholders now own a higher percentage of the shares of craigslist, diluting eBay’s ownership and power over the company.

paidContent outlines some of the specific poison pill actions (or allegations):

Among the moves by Buckmaster and Craig Newmark . . . : as an “inducement” to persuade eBay to enter into a new “right of first refusal” agreement, the two authorized the issuance of one “reorganization share” in craigslist for every five shares owned by a shareholder who agrees to the “right of first refusal” agreement, according to the lawsuit.

In this case, the new stock was issued when stockholders, namely Buckmaster and Newmark, signed on to a new Right of First Refusal agreement. The new stock here reduced eBay’s stock ownership to about 25% of the company—low enough that as per their prior agreement, they didn’t have the right to have a member on the craigslist board anymore.

craigslist on the other hand, maintains that their actions were not designed to dilute eBay’s stock or force them to sell it back at a lower price. According to the WSJ (via paidContent again), “craiglist considers eBay’s own classifieds site Kijiji a competitive activity that nullifies some shareholder rights eBay had when it bought the stake.”

craigslist has said in its blog that they wouldn’t respond publicly to the specific allegations, but that “we have an uncomfortably conflicted shareholder in our midst, one that is obsessed with dominating online classifieds for the purpose of maximizing its own profits.”

Want to know exactly what happened? The full (censored) filing, available as a PDF, details interactions between the companies back to 2004.

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  1. [...] Why the eff is eBay suing craigslist? Jordan McCollum at Marketing Pilgrim does a great job explaining it. [...]