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ebay and Craigslist fight it out in court over ownership percentages

Craigslist and eBay are seen in many eyes as direct competitors, but despite the competition between the two eBay holds a minority stake in Craigslist. A 2004 purchase grabbed eBay a 28.4% stake in Craigslist.

A suit filed by eBay this week against Craigslist alleges that the Craigslist Board of Directors, consisting of only two members including founder Craig Newmark and chief executive Jim Buckmaster, took action to dilute eBay’s stake in the company.

According to eBay unspecified actions taken by Craigslist have reduced eBay’s stake in Craigslist by more than 10%. ebay asked the court to reverse the actions of Craigslist to protect eBay’s investment and preserve its stake in Craigslist.

Reuters reports that a blog post on Craigslist stated that it was surprised and disappointed by eBay's allegations that reportedly came without any dialog with Craigslist. The blog post continued saying, “[the lawsuit by] a company that views Craigslist as a prime competitor ... seems unethical, and suggests ulterior motives such as a hostile takeover of Craigslist or the sale of eBay's stake to an unfriendly party.”

Both eBay and Craigslist are familiar with scandals and accusations. DailyTech reported recently that a man lost virtually everything he owned after a hoax on Craigslist led to people taking most of his possessions from his home. ebay was also hit recently by a boycott over its new feedback system and fees that ultimately had no effect on the auction giant.

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Conflict of Interest?
By clovell on 4/23/2008 11:42:29 AM , Rating: 2
I'm not a finance guy, but it seems a bit gauche that eBay would deliberately invest in a competitor and then turn around and sue them when their 'stake is diluted'.

If I'm understanding it right, it's sort of a zero sum game for Craigslist - if eBay were doing well, their competition (Craigslist) would suffer, and their stake would then be diluted - but then I don't suppose eBay could sue themselves (maybe I got that wrong, but it reminds me of that Coke commercial). It just seems a bit pre-meditated...




RE: Conflict of Interest?
By Seemonkeyscanfly on 4/23/2008 12:33:44 PM , Rating: 4
You are not a finance guy nor an upper corporate executive guy either. :)
Both companies sales can be high without really diluting the others. That is, enough people out there trying to sell things that both companies can be very profitable without really harming the other company. Think of any industry name of the top three companies...they all do enough business without diluting the other business.
This issue is not about what they do (make money off of people selling through their companies). It about losing voting rights, losing percentage of owner ship (which effect percentage of profit checks cut to the own), diluting their value (ownership) of Graigslist. Imagine this... You bought into a company for $1,000,000.00 which gave you 33% owner ship. Each year the company made $400,000 in profit of which you received $133,333. Give you about 13% annual return on your investment, not bad. Now you find out the two members vote to make your share only worth 20% ownership without giving you money back or chance to buy in to match money the member may have added to cause this percentage drop. Now, on that same $400,000 you earn $80,000.00 or about 8% return on your investment (getting just over half the return as before). Also your power to vote on a changes and voice your opinion has just lost power (again with no return of value to you). If this were to happen you'd be pissed. You would take the members to court to sue them, saying you can not just take away my percentage share of this company without my say so or proper pay out. So, really they are sue to maintain their ownership and slap Graig's hand for trying to dig into their pocket.
Yes, in a corporate world you can sue yourself if you look at the company as being you. Sometimes the companies actions it has to take are different then the executives action that are preformed. In many cases like this there is a legal action, just does not make big news very often.


RE: Conflict of Interest?
By Oregonian2 on 4/23/2008 1:15:39 PM , Rating: 2
..except that that kind of stuff happens every day all the time. Every time a company issues additional shares of their company, all existing share owners are diluted. The creation of those shares would be decided by and approved by a shareholder's meeting. Unless one owns a majority of shares, the others can "do it" to you w/o you liking it. Completely legal. Now, what they do with the shares has to be legit for the company -- and that I think could be subject of a suit (majority owners just deciding to increase the shares and then give it to themselves wouldn't work). But even then, it's not the dilution that's objectionable, it's what is done with it. Creating shares (and creating dilution) so the shares can be sold for money to run the company is as I said, a daily thing. I once was part of a startup, and my share percentage dropped upon each round of financing (and then went to zero when the hundred million dollars ran out... doubly indirect victim of the dot-com crash).


RE: Conflict of Interest?
By Seemonkeyscanfly on 4/23/2008 2:03:42 PM , Rating: 2
I think you are mixing up ownership of a business with ownership of stocks in a company. Graigslist is not a public trade stock (or at least I could not find them on the NYSE). When you are a member (stock holder are not members), you own a percentage of a company. When you are a stock holder you own 1 (or however many) shares of say 1,000,000 outstanding common shares (this is what most people buy...of course there are several types of stock out there; common, preferred...all have different rights). With common stock if they issues more stock out..As you are trying to say diluting out, they are doing a split and you should receive a 2 for 1, 3 for 1, or 4 for 1 split (can go negative as well). So, example that 1,000,000 share the company decides to do a 3 for 1 split. So, 1,000,000 turn into 3,000,000. If you owned 100 shares you now own 300 share (no cost to you and must be done by law). The value of the company will stay the same but the per share price will drop from example $150 per share to $50. per share. What this does for the company is, if the company owned 400,000 shares after the split it would have 1.2 million share which it could sell off 600,000 share and still own a large number of shares...creating cash for the company. As a member of a company you can not just sell or buy in. When you buy in (after other members approve of you buying into the company), you own an agreed upon share of the company and that is it. There are companies out there that are both...Example Dell: I do not know if still current today, but Micheal Dell was a majority owner of Dell as a member, and then had another company set up to trade stock (so yes, two companies call Dell, one LLC another inc or corp.). So he an some other could sell all or near all there share of their stock but still have control over Dell. Now when they create two companies to run as one that gets messed up as far as I'm concerned, however not to many companies do this.... Maybe your dot com company was one of these types of companies. However, your percentage should have never changed unless a) you sold off shares or bought more shares, b) where given the option to invest more money to create new shares and you choose not to buy more shares. This second one could be what happened to you as well, though it is not common that a company does this, it can happen (usually in a start up company with preferred stock).


RE: Conflict of Interest?
By Denigrate on 4/23/2008 3:05:33 PM , Rating: 2
FYI, NYSE is not the only stock listing in the US. Not saying that Craigslist is a publicly traded company, but even private corps can issue stock.

Unless an agreement was entered into between Ebay and Craigslist stating that Ebay had rights of first refusal on any future stock issues, Ebay is engaging in predatory behaviour. I won't do business with Ebay again due to them trying to double charge me for selling fees that were way to high in the first place.


RE: Conflict of Interest?
By Seemonkeyscanfly on 4/23/2008 3:35:11 PM , Rating: 2
Yep, know NYSE is not the only one...Just the only I went to look up on. Yes, private corps can issue stock. However, they are talking about members. Which normally means LLC - which has memberships and not stock or stock as most people would traditional know the meaning of stock. Think of an law firm. They are normally LLC with junior, senior members. Each member owns a percentage of the firm. I do not know how Craigslist is truely set up, but it sounds like an LLC.

I agree with you on ebay fees. They are going a little to crazy. I sold an item for $10 after all the fees, I cleared $4.00...60% in fees is just not right. One is hard pressed to sell low valued items on ebay right now.


RE: Conflict of Interest?
By fic2 on 4/23/2008 6:11:31 PM , Rating: 2
Any private company can issue stock. Look at all the startups - they issue private stock. And, AFAIK, the majority can dilute it. Like the previous post said, it probably depends on how and why the dilution. I would guess that CL is issueing stock to their employees. I have an LLC and coule issue stock to myself, but why bother since I own 100% of the company.


RE: Conflict of Interest?
By Seemonkeyscanfly on 4/23/2008 6:58:35 PM , Rating: 2
Why I said:
and not stock or stock as most people would traditional know the meaning of stock.
I never said a private company can not issue stock.
Call your lawyer ask him if your LLC stock is the same type of stock traded in the market place like NYSE. His answer should be No. As I stated before there are several types of stock: common stock (which everyone normally talks about), perferred stock, and several others (like the stock you would issue as an LLC in forms of membership). They all have different rules and rights. My point is that CL is probably not common stock but has membership (which can be show in some value by LLC stock, again different then common stock). Which would mean if ebay is a member of CL then they would have different rights and rules then if they bought 28% of the common stock in the open market place.
Yes, you can make 1 share of LLC stock into 1,000,000. However like you said why? it's all yours and I would add and you can not trade it on a stock exchange. If you know where I'm trying to go and what I mean you'll also know it is difficult to explain if just a few words.... :) This is not a you are wrong and I'm right issue, I was just trying to explain the different types of companies therefore different rules.


RE: Conflict of Interest?
By Oregonian2 on 4/23/2008 8:36:56 PM , Rating: 2
Uh no. The ONLY reason for a stock split is to lower the price to make it more psychologically attractive for buyers (which can raise the price). Stock that the company owns when there is a split is worth the same aggregate amount after a split, just like individual stockholders. They can raise money by selling such stock, but they only have it to sell if it's created, and that creation is what dilutes the stock. That stock also represents the company equity that is being "purchased" by an investor in a startup's round of financing (their stock will usually be "preferred" stock, but that usually only means that if things fold those shares get paid off first by the liquidation assets, as well as some other benefits which sometimes can be negatives but in that case preferred stock usually can be converted to common at the owner's option). If the company doesn't have any undistributed shares (there's a technical name but it escapes me) then it has nothing to sell. It has to invent a pile of it (another technical name that escapes me), and when they do, dilution happens.

I think you're confused about public shares and private shares of stock. Stock represents ownership. My wife used to be partners with another woman where the two owned the business (several hundred thousand a year size). Not public, privately owned. Each owned a hundred shares of stock that I recall. Stock still can represent ownership whether it's publicly sold or not. But you're right in that rules for the various forms of business may vary.


RE: Conflict of Interest?
By Samus on 4/24/2008 4:05:47 AM , Rating: 2
I agree with clovell,

it seems eBay would lose no matter what here. investing in competitors never helps your overall profit, unless you own more than 50% of them and their annual net profit is at least 50% of yours.


RE: Conflict of Interest?
By theapparition on 4/24/2008 8:20:36 AM , Rating: 2
Not entirely true.

Investing in competitors may not be detrimental provided there is plenty of room for competition in the marketplace, your competitor is doing well, and you are not "direct" competitors.

For example, the recent Sony/Toshiba HD war where Toshiba was actually one of the creators of Cell and Sony recently invested into them and sold off all manufacturing of the Cell.

Sony has invested in Microsoft. They compete on some products, but there is not that much overlap. GM owned pleny of Toyota. And lest us all not forget how much of Apple that Microsoft still owns, which topped out around 35% long ago.

I don't think craigslist and ebay are direct competitors. Yes, there is some overlap, but to my knowledge, craiglist doesn't have auctions or anything near the marketplace that ebay does. At the same time, ebay doesn't have free listings. All in all, both have done rather well and there's room for both in the segment.


RE: Conflict of Interest?
By othercents on 4/23/2008 1:40:00 PM , Rating: 2
quote:
make money off of people selling through their companies

Have you ever been to Craigslist? I know ebay makes money off of listings and then has fees when you do sell, but Craigslist doesn't do that. You post someone calls you or emails you and they buy direct without any fees. The crazy thing is I'm not sure how Craigslist makes money other than consistently selling shares of the company. I don't see any advertising which would be the logical thing for Craigslist to do.

Other


RE: Conflict of Interest?
By stone2020 on 4/23/2008 1:52:12 PM , Rating: 2
They charge for job listings and apartment listings in some cities. They had an estimated $55 million in revenue for 2007.


RE: Conflict of Interest?
By clovell on 4/23/2008 2:30:41 PM , Rating: 2
That's pretty interesting, thanks!


RE: Conflict of Interest?
By MrBlastman on 4/23/2008 1:22:06 PM , Rating: 2
It is simple really.

Ebay probably bought shares of Craigslist, yet forgot to read the fine print that the shares come with no rights and warrants.

Craigslist continued on doing business, but during this course of business they needed to raise capital, and the only way they could figure out how to do this was to do a special-IPO and issue some new shares. By doing this, they in turn created more shares available to the marketplace, thus diluting the % ownership that Ebay held through more shares being outstanding.

Since Ebay had no rights and warrants to exercise, they were not eligible for a portion of these new shares - and Ebay failed to pick them up at the IPO by being oblivious to the fact this happened.

Ebay gets mad, their lollypop fell in the sandbox and they want their percentages back! Sue now! Court battle ensues.

It probably has nothing to do with profitability, but instead, the aforementioned.


Very very stupid
By JasonMick (blog) on 4/23/2008 11:14:48 AM , Rating: 2
I would be very happy if my stake in Craigslist was diluted.

Its like saying. My investment in prostitution was diluted. ...or My investment in petty crime just keeps getting diluted.

Oh man! Life is tough.

Perhaps eBay should consider investing in a more legitimate competitor i.e. Amazon! =0




RE: Very very stupid
By omnicronx on 4/23/08, Rating: 0
RE: Very very stupid
By Trisagion on 4/23/2008 11:38:45 AM , Rating: 2
quote:
It's like saying My investment in prostitution was diluted. ...or My investment in petty crime just keeps getting diluted.


You know what's scary? Those may actually be valid statements... If you were from the mob.


RE: Very very stupid
By phxfreddy on 4/23/2008 10:06:24 PM , Rating: 2
You're way off base. Vast majority of things sold are legal. Ebays a peanut festooned turd. Web 2.0 will put it out of biz.

( and prostitution should be illegal.....however the girls who advertise on craigs are why the word cornhole was invented. They literally are ugly as whores )


RE: Very very stupid
By theapparition on 4/24/2008 8:23:31 AM , Rating: 2
Symantics, but I disagree.

You could just as easily blame your local bar for prostitution or illeagal gambling or drugs. Craigslist is just the meeting spot.

As a side note, my law enforcement buddies love CL, they've run more stings through there from anything from drugs to stolen property. They definately don't wan't it shut down.


How does Craigslist profit and pay it's employees?
By ChuckvB on 4/23/2008 1:22:41 PM , Rating: 2
With no ads or fees how is Craigslist making payroll?




By diablofish on 4/23/2008 2:35:55 PM , Rating: 2
Simple: They post "ads" about people who have to leave their property in a hurry, have their employees show up at said property with print-offs "proving" their "right" to take items from said property, then sell those items on the black market. This enables them to pay their employees.

*Tongue planted firmly in cheek.


"If a man really wants to make a million dollars, the best way would be to start his own religion." -- Scientology founder L. Ron. Hubbard











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