Delaware Crossing
Our response [PDF] in DE.
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May 16th, 2008 at 12:58 pm
Looks like ‘pro forma’ boilerplate for the most part. Can anyone decipher meaning from the pdf?
May 20th, 2008 at 1:56 pm
Hedda: it is for the most part.
Craigslist has admitted to taking some of the actions EBay alleged. Craigslist is arguing that amongst other things it was permitted to take them under laws that give directors of a corporation the ability to act in the interests of the corporation.
I think there is some question as to whether this will be an acceptable justification. They claim that they took action to eliminate threats posed by EBay but since eBay is a minority shareholder and Craig and Jim own the rest of the corporation’s shares and have effective control over it.
Because there is no ability for EBay to attempt a hostile takeover — Craig and Jim would obviously never sell their shares to EBay — some of the actions they took look wholly unnecessary and excessive.
They also provide benefit to the majority shareholders and no benefit to the minority shareholder — which doesn’t look good.
Can’t wait to see what the court thinks.
May 21st, 2008 at 12:03 am
Howard: One thing you said I’ve seen all too often in the press, the minority shareholder line. There have to be at least two minority shareholders out of 3. If Craig kept 50.01% then he’s the one and only majority shareholder. I think the whole “minority shareholder” line is a red herring. That two shareholders who together clearly control the company take actions to protect their vision of the company seems unexceptional except if there is illegal dilution of another shareholders material interest. Without seeing the evidence of the eBay initial and continuing relationship (the buy-in and any not yet public promises etc made by either side) it’s opaque. Fact: eBay voluntarily withdrew a director. Fact: the CL shareholders did not elect the replacement, the board took actions as needed. Plausible “fact”: eBay had no right to place an arbitrary choice on the board. Plausible “fact”: eBay never had a moral right to interfere with how CL was run, nor to siphon off CL trade secret info etc.
Re hostile takeover: It is possible that Jim and Craig being only human might have been concerned that in a moment of weakness one of them might for yet unknown reasons been tempted to take an offer from eBay. Some of the reported machinations could amount to a way to allow the other party to enforce a sanity check via right of first refusal. So such alleged actions are not wholly unnecessary even if provocative.
I would like to read about the dilution and related moves, but have not seen anything published about the stock “split” and how the old options and any new incentives etc. would work, but those details are clearly not for public consumption at this time if ever.
The first suit court date seems to be set for the fall. I’d hope for some developments before then, esp. with CL’s counter complaint officially in play.
Thanks for the comments, my comment was kinda lonely for awhile.
HH, critic and supporter of craigslist
May 23rd, 2008 at 11:17 am
Hedda,
Um, I don’t think it’s possible that Craig has 50.1% since eBay had 28.x% before the dilution. So if that’s the case then that would mean that Jim had = 25% of the company a seat. That’s why Craig and Jim did the ROFR to dilute the stock to get eBay’s share down to <25% stripping them of may of the rights they thought they’d have when they bought their shares.
I’ve read all the court documents and it seems to me that what Craig and Jim did was pretty questionable but IANAL so I don’t really know if it borders on illegal. Basically they issued “reorganizational” shares for stockholders who agree to a Right of First Refusal. I think it was 1 share for every 5 shares you own. Craig and Jim agreed to the ROFR and therefore got the shares. More shares get issued and so your current shares are worth less. So, they basically diluted eBay down to sub 25% which is the magic number. It’s probably legal, but the question is were they acting in the best interest of their “company” or the best interest of themselves. So…that’s kinda sneaky.
I get it though. They don’t want eBay dittering with their business. I get it, I don’t want that either.
They say how they hate big corporations and don’t need to make all kinds of money and whatnot so why did they sell to eBay in the first place? What did you *think* was going to happen?
May 24th, 2008 at 1:31 pm
Andy: By your interpretation of the stock split, if eBay agrees to ROFR then eBay’s share is no longer diluted (it gets the stock split, however that worked). Right? Without seeing the documents, can’t say why eBay, if eBay really wants over 25%, would not agree to it. What does eBay lose or gain if it goes along, under your view?
The magic at 25% is simply a voting power issue if directors are all elected at once, as I read things. If election is for just one director, nothing magic about 25%. So staggered elections would affect that, and that might be a true legal problem, staggering elections for the purpose of stripping voting power.
They did not sell to eBay in the first place. Check out the history a bit more carefully (I believe some info is in the complaint).
HH
May 27th, 2008 at 11:33 am
Hedda,
If eBay agrees to the ROFR and gets the reorganizational shares, then they can’t sell their shares at market value because Craig and Jim have the right of first refusal. So basically it puts eBay in the position of having to agree to the poison pill or lose their 25% and everything that comes with it.
The voting issue is huge, especially when there are only three votes. It’s huge.
While technically they didn’t “sell” to eBay, they absolutely allowed eBay to buy the shares. It seems to me from the wall street journal article http://www.craigslist.org/about/press/ebay.stake.html , that they had a number of other people interested in the stake.
May 27th, 2008 at 1:04 pm
re Andy — no, ROFR does not mean that eBay cannot sell, it means that when eBay wants to sell, whatever price they could get on the market must be offered to craigslist, to keep the shares “in house”. eBay can get market value for the shares, but does not have the unrestricted right to sell them to whatever entity it would, CL has the right to take the shares offered at the market price. That’s what ROFR usually means, but of course without seeing the actual documents etc., we just don’t know the facts.
As I read the complaint (and btw we’re talking about eBay’s suit, kinda off topic for this thread) as long as only one director’s seat is up for election, and Craig and Jim vote together, eBay has no effective voting power even if it has 28% of the stock, because it will always be outvoted. What IS important is eBay’s material interest, and whether the board’s actions illegally reduced that, whether economic political or other material interest. If eBay was supposed to be effectively a “silent partner” then the political interest (voting power for the sake of political influence) is not material. That is, if the idea was that having someone on the board was only a token representation, then eBay has only lost face, not material power. The reality is probably a “gray area”.
Yes, the difference between “sold shares” and “went along with a sale of shares by someone else” is important in most cases. I’m glad you agree.
HH
June 4th, 2008 at 8:32 am
Hedda,
The thing is, there’s no way to find out what the market will pay if there is no chance of those shares actually getting sold. Market price will be what the “market” is willing to pay which will be impossible to determine since the market will know that the shares will never be sold to them anyways. You see what I mean? How do you determine the price for something that has never, and will never, come up for sale? You can’t.
June 6th, 2008 at 1:26 pm
re Andy: No, there might be buyers out there that CL would be happy to have as shareholder(s). And I imagine eBay could find a “buyer” simply for the sake of pricing the shares high enough to get their money back.
But keep in mind that when eBay bought into CL there was already an ROFR agreement as part of the deal, even tho’ it apparently expired when competition began. This new ROFR may have different terms but the idea is the same.