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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.

  • http://www.netpaths.net/blog CVOS man

    Cool Hand Luke – Paul Newman’s best acting.

    CVOS man’s last blog post..Free Credit Report Lackluster SEO

  • http://www.yoursearchadvisor.com Andrew Miller

    Cool Hand Luke…great reference! Now, about those boiled eggs…

  • http://www.yoursearchadvisor.com/blog Andrew Miller

    Dang, second place. Bonus point for the quote also appearing in Guns ‘n Roses Use Your Illusion 2 album?

    Andrew Miller’s last blog post..The Future of Analytical Marketing, According to Google

  • Jordan McCollum

    Um . . . yes. Sure. Bonus point.

    Come to think of it, I’ve never seen CHL. I tend to only watch Paul Newman alongside Robert Redford. (What can I say? I like RR. Y’know, 30 years ago, when he wasn’t MY GRANDMOTHER’S AGE. I have to remind myself of that.)

    And I like asking questions to which I don’t know the answers.

  • Jordan McCollum

    Oh, and should I randomly slip quotations into posts and challenge people to name that movie more often?

  • Pingback: TrishaLyn.com » Cribbed Content for May 2nd

  • http://www.newhomessection.com Jayson

    I’d be a little upset if I was ebay too – it seems pretty clear that Craigslist wanted ebay out and that they devised a plan to get what they want.

  • http://www.talkaboutnet.com Webmaster Forums

    They always suing each others.. Ritual in business.

  • http://www.gadgets4nowt.co.uk PS3

    If my experiences of eBay customer support is anything to go by, I am surprised that craigslists actions were enough to get a response.

    Do you think they got the standard “were you happy with our service e-mail” :)

  • http://www.exposedseo.com seo dude

    Give it a few years and Ebay will be buying CG. Its like a roller coaster with these guys.

  • http://prosperitywriter.com/ Prosperity Writer

    “what we’ve got here is failure to communicate” i love this part!

  • http://www.lookcube.com Lookcube

    Competition will be good for users.

    Craiglist is an enormously useful service. I’ve found places to live, meet great people, and helped grow small side businesses with it. Nearly everyone I know has had at least one positive experience with it.

    Craiglist however has never really had serious competition. Now they do – not only from eBay, but also from spammers and bots. Competition is good for improving quality and service, but it’s rarely good for the market leader. I think I first read on Techcrunch the idea that modern websites are like TV shows, and that even successful websites only have a lifespan of 5-7 years. If that’s the case, then the battle for free local classifieds is about to heat up. This is great news for people who enjoy innovation.

    Craigslist is not known for innovation. Nor does it necessarily need to be – after all if it’s ain’t broke, don’t fix it. It’s simplicity is a large part of it’s success. However the Internet thrives on innovation, and those who stand still are eventually surpassed. Craigslist knows this, which is why they recently announced that they are hiring in their blog. But why so late to respond? When you have a lock on a market, there is no incentive to change. eBay is a great example of what happens when a successful website lacks serious competition. Competition is going to be beneficial for users. imo, eBay/Kijiji is a terrible alternative, but others will emerge as the better service…

    I think about this stuff a lot – which is why I’ve just released my own free local classifieds service called Lookcube.com – There’s enormous potential in local websites – a chance for people to meet, join, and organize, small business and freelancers to grow, and goods to be exchanged – all outside of the corporate sphere – if I can help make that happen, my effort will be a success.