Wednesday, April 23, 2008

More on the eBay craigslist Court Drama!

Here is craiglist's response to the suit filed by eBay yesterday.

"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.

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."


Apparently the founders and majority shareholders in craigslist (Craig Newmark and CEO Jim Buckmaster) feel something else is afoot. What could those ulterior motives be?

I would guess that eBay is not in the greatest negotiating position. As a minority shareholder in a private company, you really have no say at all. A good friend of mine once said; "If I own 51% of a company and you own 49% of the same company, I actually own 100% of the control"

So eBay doesn't have many options available to them to maximize the value of their stake in craigslist. All of this is speculation at this point because the details of the lawsuit are sealed.

Let's look at a scenario that possibly could have happened. Is it possible that the craigslist Board of Directors approved the sale of shares in the company to a third party at a price below market value, this would instantly dilute the value of eBay's share of the company.

eBay, could possibly just be trying to protect their investment without any ulterior motive whatsoever. Of course this lawsuit could also be the only card eBay has to play to get Craig and Jim to the negotiating table.

Update: After thinking this through a bit, it is more likely to be something like Talal brought up in the comments. It is possible that the board authorized additional shares to the founders or themselves and that would be a no-no without protecting the minority shareholders like eBay. Maybe eBay isn't the bad guy here.

Lots of fun speculating but since craigslist is a private company and the suit is sealed we won't figure out what happened until somebody spills the beans.

5 comments:

talalghosheh said...

Don't know much about the details, but I am taking corporations this semester.. lol

According to the Model Business Corporation Act (adopted in most states), the majority stakeholder and corporation, owe a fiduciary duty to keep the minority holders best interests.

Selling off shares well below market price would violate that duty. However, craigslist is a private company so its harder to determine a 'market price' because there really is no market as there is with a publically traded stock.

At the same time, if Craigslist authorizes issuance of new shares, they are required to offer the minority stakeholder a proportionate amount of shares to allow them to keep their percentage of the company the same.

Not sure of the specific facts like I said but if they are to be as explained, ebay might have a case.

Randy Smythe said...

Talal,

I think your second option is more likely. It is possible they issued additional shares to board members or the founders.

It will be interesting to see how this plays out. If it looks like a duck, quacks like a duck it probably is a duck.

eBay may simply be acting to protect its investment with no real ulterior motive.

talalghosheh said...

Make the distinction that the shares must be NEWLY authorized shares and not shares that were previously authorized but not granted to anyone.

If new shares are authorized and given to someone in order to dilute the minority shareholders percentage of shares in the company then yes that will probably be overturned by the court

Courts are very sympathetic of minority shareholder's rights and will probably either nullify the issuance or grant ebay the right to purchase additional shares to keep their percentage the same.

I find it ironic that ebay is the minority... they are usually the gorilla that calls the shots.

haha

Randy Smythe said...

Thanks! It is really funny to think that eBay may actually be the injured party here.

We are so used to them as the 800 lb gorilla when in this situation they are just the little guy.

The more I think about this, it looks like purely a play to protect eBay's investment, though Craigslist is playing the victim here.


I know it is hard to beleive that eBay doesn't have an ulterior motive here but stranger things have happened.

Anonymous said...

Sometimes I have difficulty sleeping at night... for I mull the possibility that ebay may, someday, come into the posession of an Atomic Bomb.