12 comments

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  Paul Kedrosky

  4 months ago

  I'd still call this a poison pill. After all, from Craiglist's point of view Ebay definitely meets the criteria for being a hostile would-be acquirer.
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  mathewi

  4 months ago

  I agree, Paul -- but certain legal friends of mine disagree :-)
  
  They say a true poison pill is used to prevent a public company from
  being taken over, and they argue that that can't possibly happen in
  this case because Jim and Craig control the company. All Craigslist
  is really trying to do is prevent eBay from selling to someone other
  than them.
  
  My argument is that saying "poison pill," while not strictly correct,
  is a lot easier than saying "a dilutive shareholders' rights agreement
  that floods the company with cheap stock as a way of trying to prevent
  someone from doing something involving the shares."
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• 

  Delia

  4 months ago

  Matthew,
  
  I'm just curious... how do you suppose ebay got more than 25% of craigslist? that wasn't Craig's / craigslist's story was it?
  
  Delia
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  mathewi

  4 months ago

  I'm not sure, Delia -- Craig has always said that eBay had 25 per
  cent, but eBay has always claimed it was 28 per cent.
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• 

  Delia

  4 months ago

  why on earth aren't people pointing this out? I mean, The New York Times, Reuters, Associated Press... they must have noticed the difference, no? D.
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  Delia

  4 months ago

  little detail: ebay hasn't *always* claimed they got 28.4 % (which is closer to 30% 30% than 25%) , they initially claimed it was "approimatively 25%" (ebay press release at the time), which fit Craig's//craigslist's story. I find it intriguing that according to the complaint, Craig&Jim deluted craigslist to 25.01% (which definitely qualifies as "approximately 25%" as ebay initially said...) D.
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  Delia

  4 months ago

  just to clarify: according to ebay's complaint, craigslist did subsequent dilutions of ebay's share of craigslist: the dilution to 25.01% came about in 2005 when employees were given stock options; further dilution to under 25% happened more recently and prompted ebay's law suit.
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  mathewi

  4 months ago

  Thanks for clarifying that, Delia -- I meant to add that to the original post.
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  Delia

  4 months ago

  oops! that way *ebay* (NOT craigslist): Craig& Jim diluted ebay's share of craigslist D.
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  David

  4 months ago

  I agree that it's weird to call it a poison pill, given that it's a private company context. However, it does operate identically to how a true poison pill operates.
  
  I think it would still be considered a "defensive measure" under Delaware law, however, meaning that it has to have a reasonable relation to the threat posed (meaning that the law recognizes that management can take measures to protect their positions).
  
  It doesn't look like it really bears any relation to a threat at all, and I think it is also clearly a self-interested transaction. This situation really does demonstrate the "lock-in" problem faced by minority owners in private companies.
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  mathewi

  4 months ago

  I agree, David -- it certainly does seem self-interested, and harmful to eBay. Craigslist is going to have a tough time proving that it was justified or necessary, it seems to me.
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• 

  David

  4 months ago

  The legal consequence of the self-dealing is that Craig and Jim now have to prove that the transactions were actually fair - they don't get the benefit of the doubt.
  
  The thing is, they only had the 3 board members, which seemed to have gone down to 2 (Craig and Jim) at the time of the disputed transactions. Not having any independent directors on the board was not a good idea, in hindsight.
  
  Even if they had just nominated a special independent committee for those transactions, that would have at least given them an argument that someone was looking out for the interests of the minority.
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