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Craigslist, eBay at Odds in Court Papers

Craiglist
Source: Reuters

Web classifieds leader Craigslist sought a divorce, while online auction giant eBay (NASDAQ: EBAY) proposed a formal marriage, according to court papers unsealed on Wednesday that detail a testy four-year relationship.

In a lawsuit filed under seal in Delaware Chancery Court last week, eBay alleged that Craigslist held "clandestine" directors' meetings in recent months to dilute eBay's 28.4 percent stake to 24.85, or less than a quarter of the company.

A redacted version of the suit was released on Wednesday.

"We are no longer comfortable having eBay as a shareholder and wish to explore options for our repurchase, or for otherwise finding a new home for these shares," Craigslist Chief Executive Jim Buckmaster was quoted in the court papers as telling eBay's then-CEO Meg Whitman last summer.

Meg Whitman, then eBay's chief executive, responded via e-mail last July with an offer to buy out Craigslist. "We would welcome the opportunity to acquire the remainder of [the company] we do not already own whenever you ... feel it would be appropriate," she wrote to Craigslist CEO Jim Buckmaster.

The lawsuit cited industry commentators as saying Craigslist could be worth several billion dollars. It ranked as the world's third most valuable Web startup in a list released by Silicon Alley Insider earlier this week: Valued at around $5 billion, Craigslist falls behind only Facebook and Wikipedia.

Reached by telephone late on Wednesday, Craigslist founder Craig Newmark said he would not be interested in a sale, even for billions of dollars. "Well, we have been saying consistently we are not interested in selling," he said.

Newmark says providing a good community service rather than earning a lot more money than a single individual needs is his motivation in continuing his Craigslist work. He declined to speak in detail about the lawsuit.

Craigslist operates with only a few dozen employees. Its headquarters is located in a modest, century-old Victorian house located in a residential neighborhood of San Francisco. It relies on volunteers to run sites in 567 cities worldwide.

Newmark and Buckmaster have defied the conventional path taken by virtually all successful Silicon Valley startups by refusing to go on the stock market through an initial public offering.

At a 2006 UBS media conference, Buckmaster bewildered Wall Street investors by saying Craigslist had no desire to maximize sales by running simple text advertising on its site.

"Sadly, 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," Craigslist said in a statement on its Web site on Wednesday.

Both companies grew out of the ferment of new Web business ideas that exploded in Silicon Valley in the mid-1990s.

But their stories diverge as eBay went on to dominate online auction markets, becoming a multibillion company. By contrast, Craigslist stayed true to its uncommercial ethic by not charging for most of its local listings.

eBay bought a minority ownership stake in Craigslist nearly four years ago as part of a strategy to buy up classified advertising services both in the United States and Europe.

In 2005, eBay launched its own free online classifieds site called Kijiji, first in several European and Asian markets, and in 2007, it entered the United States. Kijiji operates in hundreds of German cities and has spread to markets including France, Italy, India, Taiwan and Canada.

They compete directly in the United States and a dozen other countries, with Kijiji tailoring its ads to young families in contrast to Craigslist's open flea-market style.

eBay's suit asserts that a move in January by Craigslist to introduce a "poison pill" policy to fend off unwanted takeovers was evidence that Craigslist is trying to drive eBay out.

"Defendants' actions are a thinly disguised stratagem to force eBay to sell its shares to them [or the Company they control] at below-market price," the suit claims.



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