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eBay Sues Craigslist
phpmysqldev writes "In a very random move eBay has filed a lawsuit against Craigslist to 'protect its investment and shareholders'.
"In a statement, eBay claimed that in January, Craigslist executives took actions that 'unfairly diluted eBay's economic interest by more than 10%'." eBay is a minority shareholder of Craigslist owning 28.4%. Craigslist suspects eBay's intentions are less than honorable, speculating about a possible hostile takeover. The court case is sealed and eBay has not elaborated on its claims."
1) Craigslist is a closely held company not traded on the open market
2) This is a dilution suit. This means that basically, in a closely held company, it's easy for a majority shareholder to screw a minority shareholder, since the minority shareholder can't outvote them and can't get other shareholders to support it. Therefore, we have a lot of laws protecting minority shareholders. In this case, it seems that eBay has issued extra stock, which means that eBay no longer really has 28%, but rather less, effectively. This CAN be legal, but there has to be a solid, nonpredatory reason for it.
3) eBay managed to get its share because craigslist had issued some shares to close employees, on the assumption that it didn't matter and was just to feel nice. One of those employees decided to sell his stake publicly, and eBay bought it. Normally, no one would have been able to get access to Craigslist stock.
-Daniel
They aren't suing because they're competition, they're suing because they own 28% of Craigslist, and Craigslist has been (supposedly) diluting their share. This is EXTREMELY illegal, if done for reasons other than sound financial judgment (and I can't believe Craigslist has a legit reason for issuing more shares, if that is what they've been doing).
Regardless of what you think of eBay, this is a bad deal by Craigslist, if true.
-Daniel
No. That's not it at all -- they're suing because Craigslist did something that hurt the value of ebay's stock in Craigslist.
The complaint is sealed, so we don't know exactly what it was. It *could* be something like the following: The stock is worth, say, $100 per share, and ebay owns about 28% of it. Craigslist decides to sell a bunch of shares to Craig at $50 per share. Ebay is hurt because the value of its investment went down, but the value to Craig went up. Basically, it's a breach of the company's duty to the minority stockholder. It has nothing to do with competition.
ebay actually owns a minority interest in Craigslist. Minority shareholders are protected by the corporate laws of most states from abusive practices by the majority shareholders. In this case, ebay claims that the majority shareholders diluted the value of their shares in an unspecified way. Most likely, Craigslist issued additional shares of stock (thus reducing ebay's proportional ownership), or took property from the company in a way that reduced the value of ebay's investment.
Minority shareholders are a major hassle, and it was a pretty sloppy bit of work that ebay was able to acquire the shares of Craigslist in the first place.
"If you think you have things under control, you're not going fast enough." --Mario Andretti
Ebay is a minority shareholder in Craigslist. They aren't upset about any sort of competition. We don't know exactly what they are upset about, as the case is sealed. Most likely Craigslist has introduced a flood of new shares in order to reduce ebay's influence on the company.
P.S. I'm not sure if you are trolling or not, but not everything can be so easily summed up by jumping to conclusions about evil corporations and their anti-competitive nature.
I got a catholic block.
You, and nine friends, all pitch in $500 for a classic video game collection (a total of $5000). Each person has a 10% stake, so if the games go up in price, everyone profits.
Now imagine that the "chairman" decides to sell an additional $1000 stake to a new participant, ostensibly to purchase more video games. In return this person gets 17% ownership of the video game collection.
Do you see how this dilutes your share of the value? The $1000 stakeholder now has 17%, leaving you with only 8.3%. And suppose that the $1000 of new capital is used to purchase bogus games which have no real value, or even worse, is just pocketed by the chairman. You're getting screwed.
That's what it means when they say you need a "sound financial reason" to dilute the other shareholders' stakes.
The real question is, does Craiglist have this sound financial reason? Is the issuance of fresh stock going to lead ultimately to a gain for all parties? We don't know -- and that's the subject of this lawsuit.
Don't get too wrapped up in it - That's mcgrew. He posts prolifically even when he has absolutely nothing to say...
Of course we'll speculate and discuss. It's an interesting situation even if we have few details.
Hostile takeover. Ebay files the lawsuit to devalue the shares. Then, Ebay buys up more and more shares to have greater control over an eventual vote. Ebay tenders an offer for Craigslist. Since it owns more, it can influence the shareholder vote more significantly. Ebay wins the auction (ha) and cancels the lawsuit.
-l
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I withdraw my comment as Craigslist is not a public company. D'oh.
-l
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You can still own part of a private company.
There is another comment that explains how they got their shares.
-l
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You'd be surprised how large a company can be and still make that same mistake.
SAIC (nee SAI) http://en.wikipedia.org/wiki/Science_Applications_International_Corporation/, number 285 on the Fortune 500 list, was employee-owned until 2006 but didn't think to add the clause giving the company right of first refusal until the first time an employee left the company and declined to sell back the stock they owned.
They bought stock, which is privately held. On a tiny amount of companies are traded on an exchange. The vast majority are private.
Bill Clinton: Pimp we can believe in. - The Shirt!!!
Lame, there goes a free mechanism to sell junk in my basement.
Taking it out on craigslist because they (eBay) upped their prices and fees due to the fact fewer people use them... Nice. It has nothing to do with all the discussions in the news about the US economy sucking wind is really squeezing families making less than $100K a year.
Please...
Just yesterday Marketplace conducted an interview with the Craigslist CEO. You can listen to the interview on their site (it's the "listen to story" link, not the "listen to show" link). It's a pretty interesting interview -- one of the questions was "why aren't you running advertising?" And the answer was "because it's annoying and we think annoying our customers is stupid." When I heard him say that, I sat back and thought "Yeah! Nice to hear a CEO who really gets it."
They're a profitable company; but not madly, hugely, enormously profitable the way they could be. I like that. Capitalism offers powerful incentives to participate in the economy, which is generally good; but it also has a tendency to encourage empire-building and delusions of grandeur. So it's nice to see a company once in a while which isn't hell bent on world domination.
I wish their pages were a bit better designed, though. I appreciate the focus on navigation, but would it kill them to put borders around some of the boxes full of lists, to visually group them? And they could make some improvements for screen reader users, especially adding headings so that blind visitors could have their screen readers jump to the headings in the page rather than having to wade through everything that comes before the part they're interested in.
Your flawed assumption is that the government can be trusted to properly regulate companies. I don't know about you, but at this moment in time I will take the companies. It is easy to stop using ebay, it isn't as easy to stop using the government.
So when you have implemented a government that ISN'T run by corporations, cares about the people of the state, and is worthy of me putting all my eggs in that basket... then I will admit that the free market is not the way to go.
No comprende? Let me type that a little slower for you...
If you own part of a private company, you want to either just be a silent partner or you want you want to have controlling interest. Anything under 51% is not controlling interest. If you have less than 50% then you are at the whim of any decision you partners want to make, as long as that decision is within the laws and bylaws controlling your company.
Now if the Board (typically put in place by the majority owner, unless you have a close holding and cumulative voting) issues a bunch of shares without a previous non-dilution agreement, there will be a dilution of shares and potentially value. This is what eBay is complaining about.
From what I have read, the Board issued shares to another entity increasing the number of shares outstanding. Therefore, eBays original number of shares now come from a larger amount of shares, thus they have a lower percentage. As the value of eBays interest is based on the percentage of shares they basically have seen a forced decline in their investment. The Board has a legal fiduciary responsibility to all shareholders equally to give them value for their investment. eBay is suing as they believe that the Boards actions impacted the value of their shares, by reducing the percentage of the total value they are due.
A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort.
True so there is no share price to knock down.
If ebay can get a controlling majority in craigslist they put the prices up to be higher than thier own and they win.
If ebay can bankrupt craigslist they buy the name/domains at the bankrupcy sale and either redirect it to ebay or set up thier own craigslist site with ebay like pricing. Again they win.
If they can get a settlement or judgement paid in stock that puts them closer to a controlling majority.
snap up shares when you can and harras the company with minority shareholder lawsuits (which are likely to cause pain to a lot of companies who aren't agressively monitising thier assets) in the meantime. Also harras the company with any other lawsuits you think you can get away with.
note: i'm known as plugwash most places but i screwd up registering that here somehow in the past and now can't register
No YOU'VE missed the point. PLEASE show me a link where these mythical "net.Libertarians" don't anticipate.. you know, people acting like PEOPLE.
Libertarians are NOT idealists. We're advocating the best approach that works WITH human nature, not against it.
Monopolies? Government IS a monopoly, by definition.
Sleazy stock takeovers? How about a government that can leave you bankrupt and jailed on a whim?
Bribes? Never happens in government now does it?
False Advertising? I can't think of a government program that has EVER come in on time, under budget, and completed satisfactorily. You know a politician is lying when their mouth is moving.
Imperfect knowledge of consumers? Governments THRIVE on misinformation. Its an artform with them.
Dumping pollutants? Happens all the time with government. Check Google for what's happening in Area 51 for one small example.
Sorry, but your cure is worse than the "disease" you rant so incoherently against.
And your tagline is a perfect example of the breathtaking vastness of your lack of understanding. WHO gets to decide what constitutes "too many things"? You? Hillary? Mao?
Your ridiculous "philsophy" will never work as long as human nature is what it is. If we manage to change that, then of course it will no longer be "human nature".
Please crawl back under your rock now. and for the FSM's sake, PLEASE never, ever vote.