Strange Bedfellows - EBay, Craiglist and Profit Versus Public Service

For the exclusive use of Y. Sunitiyoso, 2017.
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Strange Bedfellows: eBay, craigslist and

Profit versus Public Service
Sonia J. Toson, Kennesaw State University
Introduction—The Decision
James Buckmaster stared at the memo from outside counsel. It was April 2008 and
the inevitable had occurred. They were being sued by eBay. eBay had been a minority
shareholder in craigslist, Inc. for the past 6 years. Over the course of that time, the rela-
tionship had spiraled out of control. Against the wishes of Buckmaster and Newmark,
eBay had begun to directly compete with craigslist by launching their own online clas-
sifieds website and had been clear about its desire to acquire craigslist altogether.1 On
the advice of their attorneys, craigslist, Inc. owners James Buckmaster (“Buckmaster”)
and Craig Newmark (“Newmark”) had responded by implementing three strategic
defensive measures.2 The execution of that strategy had now resulted in a lawsuit.
Outside counsel, Ed Wes of Perkins, Coie, LLP had provided Buckmaster and
Newmark with a detailed memorandum of law outlining the details of the lawsuit
and the firm’s recommendations for defending the suit. In their complaint, eBay had
alleged that by implementing a staggered board, approving a stockholder rights plan,
and issuing dilutive stock, Buckmaster and Newmark had breached their fiduciary
duties to eBay, the minority shareholder.3 As such, Buckmaster and Newmark were
now faced with the decision of whether to defend themselves in court, or try to settle
the case without litigation.
Background—A Tale of Two Companies

History of craigslist
In 1995, craigslist formed as a for-profit corporation with a basic public-service mis-
sion: to help people find “stuff” (See Exhibit A for a timeline of the events described
in the case). Anything a customer needed, from lawn services or a treadmill to an
apartment or a job could be found on craigslist . . . for free. According to Newmark,
“When I started it, all I thought was I was giving a little bit back to the community.”4
In fact, craigslist was briefly organized as a nonprofit early in its development. Without

Copyright © 2017 by the Case Research Journal and Sonia J. Toson. The author wishes to thank Black
Magic Writing Institute for their assistance in the review and editing of this case. The author also wishes
to thank John J. Lawrence and the anonymous CRJ reviewers for their helpful suggestions and thorough
review of this case. An earlier version of this case was presented at the 2014 Annual Meeting of the South-
east Case Research Association.

Strange Bedfellows: eBay, craigslist and Profit versus Public Service 1
This document is authorized for use only by Yos Sunitiyoso in 2017.

necessarily intending to, craigslist became a profitable business and later converted to
a for-profit corporation in 1999 (see Appendix 1).5 According to Buckmaster, “We
kept the dot-org internet address as kind of a symbol of our way of doing business, or
our philosophy if you will, where we are trying to maximize social good rather than
revenues or profits.”6 When specifically asked why craigslist chose to maximize social
good rather than profit, Buckmaster noted:
Well, for one thing, it’s more fun for us to do it that way. I should say that we do have
a healthy business and have had for many years now. It’s important for us to stay in
the black since we don’t want to borrow money or sell stock to the public. But beyond
having a healthy business, it’s not important to us to maximize those financial metrics,
it’s a lot more fun to try to make the site as useful as possible for as many people as
want or need it.7
When asked why they did not organize as a nonprofit corporation considering
their public service mission, Newmark stated,
Since we have never solicited or accepted charitable donations, and since our primary
activity does not qualify for tax-exempt status, it doesn’t make a lot of sense for craigslist
to operate as a nonprofit. Also, nonprofit vs. for-profit status has nothing whatsoever to
do with whether an organization is profitable.8
craigslist started as a small company and remained small over the years. The company
consisted of only three owners and about thirty employees (see Exhibit B). Its only
revenue stream came from apartment listings in San Francisco and New York and
online job postings in certain cities.9
The company was purposely kept small and service-oriented, and had purposely
avoided monetizing, or creating revenue through its website content. The most com-
mon method of monetizing a website was through advertisement sales.10 There were,
however, no ads or other monetization tools utilized anywhere on the craigslist site.
craigslist was approached about monetization early in the company’s history, how-
ever, Newmark made the decision to keep craigslist non-commercial. His reasoning
was that “some things should be about money, some shouldn’t.”11 In addition to not
wanting to have a commercial site, he felt no need to gain extra revenue through mon-
etization because he was making enough with contract programming.12 Newmark and
Buckmaster therefore crafted a mission that involved “restoring the human voice to
the internet in a humane, non-commercial environment,” “providing an alternative
to impersonal, big-media sites” and creating a “collection of communities.”13 Both
Buckmaster and Newmark attributed their success to this philosophy. According to
Buckmaster, craigslist’s service mission “is the basis upon which our business success
rests. Without that mission, I don’t think this company has the business success it
has.”14
History of eBay
Meanwhile, the story of eBay read much differently. eBay sought to take over the
online auction industry from the very start of the company. eBay began in 1995 as
AuctionWeb, a company designed to put sellers and buyers on equal footing in a true
marketplace on the internet.
According to founder, Pierre Omidyar:
I had really just created this site as an experiment, you know. I had a day job, did that
over Labor Day Weekend, put it out there. . . . I sat down at my computer and started

2 Case Research Journal • Volume 36 • Issue 3 • Summer 2016

writing a script, a Perl script to create a very basic auction mechanism. And the code
was really simple. It just, it allowed you to list an item for sale. It could have a title and
a description and a starting price. And you could also see a list of all the items that were
listed . . . It really just took a weekend of work. And I was working, you know, pretty
much all day and all that weekend. And I think it was Labor Day of 1995, September
4th or 5th, ’95, that I was able to, that morning to basically turn it on. I’d uploaded
to my internet service provider, so it was publicly available, turned it on and that was
Auction Web.15
eBay grew exponentially over the next several years. It went public three years later
in 199816 and by 2005, it had acquired several notable subsidiaries, such as PayPal,
Skype, Half.com, and Rent.com.17 By 2006, the company was grossing $3.7 billion in
revenues.18 eBay’s business model was centered on profit maximization and an integral
part of that model was aggressive monetization.19 Sellers who used eBay’s site paid eBay
a commission on each sale, which comprised its primary revenue stream. eBay also
actively advertised its service and actively sought to drive web traffic to its sites, which
created an additional revenue stream.20 eBay utilized a sizeable management team to
supervise over 16,000 employees who were spread out in multiple offices across the
world (see Exhibit B).21
A New Shareholder
By 2002, craigslist was owned by three shareholders: Newmark, Buckmaster, and
Phillip Knowlton (“Knowlton”), and was enjoying immense success with its simple,
streamlined website. Realizing the potential to substantially increase profits, Knowl-
ton began to push Buckmaster and Newmark to monetize the site.22 Buckmaster and
Newmark wanted to maintain the service-oriented nature of the company and stick
with just helping people find “stuff,” and therefore refused. Buckmaster summarized
their position by stating:
We’ve been told by salespeople that we could bring in many millions of dollars by
adding text ads, but our users aren’t asking us for text ads so we don’t have them. Paid
search can create a conflict of interest with site search. The better your site search is, the
less need there is for paid search.23
After going back and forth for the better part of a year, with Buckmaster and
Newmark continuing to refuse to monetize the site, Knowlton threatened to utilize
“non-friendly persuasion” and sell his shares to a competitor if they didn’t acquiesce.
According to craigslist attorney Ed Wes, Knowlton’s goal was to “sell to a competitor
who would ‘bleed craigslist and suck it dry.’”24 Based on their strong belief that it was
their service-oriented mission that made them so successful, Buckmaster and New-
mark maintained their refusal to monetize. As a result, in late 2003, Knowlton began
shopping his shares to potential buyers.25
At this point, it was clear that Knowlton was going to sell his shares and Buck-
master felt it was his duty as CEO to meet with potential buyers.26 In meeting with
potential buyers, Buckmaster and Newmark gave clear notice that while they would
agree to a sale of Knowlton’s shares, they would not be giving up their majority share.27
Around the same time craigslist was embroiled in a battle with Knowlton, eBay
was looking to enter the online classifieds market. They had recently made two major
acquisitions, iBazaar (a similar auction site in Europe) and PayPal (an online service
allowing customers to pay, send money and receive payments), and were looking to


add another strong company to their growing fleet.28 The success of craigslist had not
gone unnoticed. In discussing eBay’s desire to purchase the company with Newmark,
CEO Meg Whitman (“Whitman”) described craigslist as “the play in classifieds.”29
eBay recognized the potential of craigslist to be substantially more successful through
monetization.
In early 2004, eBay approached Knowlton and began negotiations to buy his
shares, hoping that this would be the first step in a later acquisition of craigslist.30 In
an effort to be transparent, Whitman made sure that Buckmaster and Newmark were
included in the negotiations. eBay executives repeatedly made it clear that they wanted
to buy the entire company, and not just Knowlton’s shares.31 Buckmaster and New-
mark, however, continually told eBay that they had no intention of selling their shares.
When eBay continued to push for a larger acquisition, Buckmaster and Newmark
broke off negotiations.32
Negotiations only resumed after Buckmaster and Newmark met with Whitman,
who assured them that eBay would be content with a minority stake in the company.
According to Newmark, Whitman convincingly stated that she shared their values and
would keep her word.33 After this conversation, Buckmaster and Newmark made the
decision to trust her.34 Going into the deal, eBay expected to capitalize on the “tre-
mendous untapped monetization potential” of craigslist. Newmark and Buckmaster,
on the other hand, expected to continue to grow their business by maintaining its
community oriented, public service style of doing business.35 The investment from
eBay provided revenue that would further that goal. However, negotiations stalled
once again when Buckmaster and Newmark learned that Knowlton was to receive $15
million for his shares. In an e-mail to outside counsel, Newmark stated that he was
“definitely not interested in seeing the dumb guy [Knowlton] get that figure.”36 Buck-
master and Newmark would not move forward unless they received the same amount
of money that Knowlton would be receiving.37 Eventually, in August 2004, Knowlton
sold his shares to eBay for $32 million with $16 million going to Knowlton, $8 mil-
lion going to Buckmaster and $8 million going to Newmark.38 The new corporate
ownership structure of craigslist was:
• Craig Newmark: 42.6 percent
• Jim Buckmaster: 39 percent
• eBay Holdings, Inc.: 28.4 percent39
With the lowest percentage of shares, eBay became the minority shareholder of
the corporation. A minority shareholder is defined as any shareholder owning less
than 50 percent of the outstanding shares in a corporation. Minority shareholders
therefore have no real voting power in the corporation.40 By definition, all three share-
holders were minority shareholders. However, Buckmaster and Newmark entered into
a voting agreement that combined their votes allowing them to become controlling
shareholders. This meant that eBay would never be able to outvote the combined
Buckmaster-Newmark vote, rendering them theoretically powerless and subject to
Buckmaster and Newmark’s control of the company. In light of their status as the
minority shareholder, they negotiated certain protections to give themselves more
power (as described later in this section).41 Buckmaster and Newmark were cautious in
agreeing to these protections. Even though they were the minority shareholder, eBay
was the larger company with greater resources and while they had ultimately agreed to
the minority stake, Buckmaster and Newmark knew that eBay remained interested in
acquiring all of craigslist.


To prevent any attempt at a takeover by eBay, Buckmaster and Newmark under-

took two protective measures of its own. One of those measures was to enter into a
voting agreement that ensured that they would retain control of the craigslist board
of directors. The second measure was to structure the purchase of Knowlton’s shares
in a way that would minimize the likelihood that eBay would directly compete with
them in the online classified market. This was accomplished through the use of two
agreements: a shareholder purchase agreement (“SPA”) and a shareholder’s agreement
(“Shareholder’s Agreement”).42
Both agreements were signed at the same time and were designed to protect both
companies from the risk involved in the transaction. The SPA contained protective
measures for both craigslist and eBay. Buckmaster and Newmark sought to protect
themselves against losing control of the company and possible competition by a share-
holder. At the same time, eBay sought to protect itself as the minority shareholder.
This resulted in a uniquely structured agreement that sought to meet both parties’
interests. The SPA provided for a new charter for craigslist and, most importantly, a
three-person board of directors that was to be elected via cumulative voting.43 Cumu-
lative voting allows a shareholder to accumulate their total votes (number of shares
multiplied by number of candidates being elected) and cast them all for one candidate.
Without cumulative voting, however, a shareholder is limited to voting no more than
the number of shares that he or she owns for a single candidate. This is known as
noncumulative voting. The effect of noncumulative voting is that the majority share-
holders have the power to elect the entire board.44 This ensures that the minority
shareholder is able to elect at least one board member.45
This provision would ensure that even as a minority shareholder, eBay would still
be able to unilaterally vote at least one member onto the craigslist board of directors.
Ensuring that it would always hold at least one seat on the craigslist board was the first
step taken by eBay to protect itself as a minority shareholder.46 The next steps were
taken via the Shareholder’s Agreement. The Shareholder’s Agreement contained the
following five primary categories of rights and duties designed to create a balance of
power between Newmark, Buckmaster, and eBay.
1. Confidentiality requirements
2. Consent rights
3. Transfer restrictions
4. Competition rights
5. Consequences of competition47
The first category of importance in the agreement involved eBay’s responsibility as
a craigslist shareholder to keep craigslist’s nonpublic information confidential.48 Buck-
master and Newmark were well aware that eBay’s investment in the company would
give them access to key craigslist data, and therefore wanted to ensure that their non-
public information was protected. The agreement required eBay to keep all nonpublic
craigslist data confidential. This portion of the agreement also limited the manner in
which eBay would be able to use craigslist’s confidential information.49
Second, the agreement defined and clarified eBay’s right to consent to certain trans-
actions craigslist might enter into. Specifically, eBay had the right to consent to:
• any amendment to the craigslist charter that would “adversely affect” eBay,
• any amendment that would increase or decrease the authorized shares of
craigslist stock,


• the adoption of any agreement between craigslist and its officers or directors
providing for the issuance of stock and
• the declaration of dividends.
The consent right provision was intentionally designed to protect eBay as a minority
shareholder.50
The third important category in the Shareholder Agreement involved several trans-
fer restrictions on the craigslist shares owned by Newmark, Buckmaster, and eBay,
specifically preemptive rights and the right of first refusal. Preemptive rights allow a
shareholder to maintain their proportionate share of a corporation by purchasing a
proportionate share of any new stock issue. Typically, an existing shareholder has the
right to buy their proportionate share before others have the right to purchase shares of
the new issue.51 The agreement gave eBay, Buckmaster, and Newmark the right to pur-
chase enough shares in a new issuance of craigslist stock to maintain their respective
ownership percentages.52 The agreement also granted eBay, Buckmaster, and Newmark
the right of first refusal, which typically allows current shareholders the first opportu-
nity to buy shares before they are sold to a third party, at the same terms offered by the
third party.53 This meant that Buckmaster, Newmark, and eBay would each have the
first opportunity to purchase each other’s shares should one of them desire to sell to a
third party. The only condition was that they would be required to match the purchase
price and terms offered by the third party in order to exercise this right.54
The fourth major component of the Shareholder’s Agreement was eBay’s right to
compete with craigslist. During negotiations, eBay fought hard for and won the right
to compete against craigslist in the online classifieds market.55 According to eBay exec-
utive Garrett Price, “Buckmaster and Newmark understood that if they insisted eBay
sign a non-compete agreement, it would be a DefCon 5/deal breaker issue for eBay.”56
The fifth and final category of significance in the Shareholder’s Agreement con-
sisted of the contractual consequences that would result if eBay were to compete with
craigslist; specifically the loss of the minority protections granted in the agreement.57
Under the agreement, eBay was, in fact, allowed to compete with craigslist. However,
the penalties for competitive activity were severe.58 The agreement stated that if eBay
launched an online job posting site in the United States, craigslist would issue a notice
of competitive activity.59 Under the agreement, “competitive activity” was defined as
“the business of providing an Internet posting board containing specific categories for
the listing by employers and recruiters of available jobs and posting of resumes by job
seekers anywhere in the United States.”60 Upon notice of violating this section, eBay
would be given ninety days to cure or correct its competitive behavior. If it failed to
do so, eBay would lose 1) its consent rights, 2) its preemptive rights, and 3) its right of
first refusal over Buckmaster and Newmark’s shares.61
The New craigslist

Following eBay’s investment in craigslist, the new board of directors consisted of New-
mark, Buckmaster, and Pierre Omidyar (“Omidyar,”) the original founder of eBay and
the chairman of the eBay board of directors. craigslist and eBay officially began operat-
ing jointly as the “new” craigslist with its first board meeting in February of 2005.62
eBay’s goal going into this meeting was to convince Buckmaster and Newmark
to enter the international classifieds market, and to lay the groundwork to ultimately
acquire craigslist.63 eBay gave a presentation at the meeting that began by stating “eBay


has successfully followed a strategy of working extremely closely with affiliates on their
path to becoming wholly-owned subsidiaries of eBay, Inc.”64 Omidyar made several
suggestions at the meeting designed to place craigslist on this path. Among them were
the suggestions that craigslist leverage eBay’s considerable resources to improve certain
features of its site and suggestions on how craigslist and eBay might enter the interna-
tional online classifieds market.65
These suggestions were met with a less than enthusiastic response on the part of
Newmark and Buckmaster, which left Omidyar feeling like eBay was more of an out-
sider than a true partner in the new craigslist.66 This prompted eBay executives to send
Buckmaster and Newmark an e-mail requesting an update on the business relation-
ship at the next board meeting on March 28, 2005. Sensing a problem, eBay was
determined to find out what motivated Buckmaster and Newmark to consent to the
investment in craigslist by eBay, what they hoped to gain from it, and where they saw
the relationship progressing from that point.67
Buckmaster and Newmark responded by letting eBay know that their expectations
were that:
1. eBay would show appreciation for their unique, service-oriented mission and
philosophy.
2. eBay would be content with a minority stake in the company and a 3-year
“getting to know you” period, during which there would be no discussion of
eBay acquiring a larger stake in the company.
3. craigslist was to be eBay’s primary interest in online classifieds, and that eBay
would not compete with craigslist in the online classifieds market.68
At this point, it was clear that Buckmaster and Newmark and eBay had vastly dif-
ferent visions of the direction in which craigslist should go. It was at this point that
eBay decided to move forward with its plans to enter the international online classi-
fieds market . . . with or without craigslist.
The Launch of Kijiji

In early March of 2005, eBay deployed an online classifieds site internationally, nam-
ing the site Kijiji.69 While Kijiji was not an exact replica of craigslist aesthetically, its
purpose was the same in that it offered a free classifieds service with a wide variety of
listings. eBay eventually expanded Kijiji to countries throughout Europe and Asia as
well as Canada.70 By 2007, eBay was ready to launch the site in the United States, and
informed craigslist of its intent to do so.71 Shortly after informing craigslist of its intent
to launch Kijiji, eBay attempted to renegotiate the 2005 Shareholders’ Agreement in
an effort prevent the loss of its protections as a minority shareholder once the launch
occurred. In this renegotiation, eBay sought to modify the agreement such that eBay
would still lose its consent rights following competitive activity, but craigslist would
be required to give eBay fifteen days advance notice before taking any adverse actions
including a charter amendment or issuance of additional craigslist stock.72 In exchange
for the notice, eBay would agree to a charter amendment eliminating cumulative vot-
ing which would remove their ability to elect a director to the craigslist board.73
craigslist never responded to eBay’s proposal and as a result, the renegotiation effort
was unsuccessful. On June 29, 2007, eBay launched Kijiji in the United States by
deploying it in 220 cities throughout all fifty states.74 On that same day, craigslist sent


eBay a Notice of Competitive Activity, pursuant to Section 8.3 of the Shareholders’

Agreement signed in 2004. The notice stated that eBay’s launch of Kijiji.com consti-
tuted competition with craigslist in violation of the original shareholder agreement.75
In addition, the notice gave eBay ninety days to cure its default of the agreement
before eBay would lose the minority protections it held under the agreement, namely
its consent rights, preemptive rights over the issuance of new shares, and the right of
first refusal over Buckmaster and Newmark’s shares.76
eBay ignored the notice of competitive activity and by July of 2007, Buckmaster
and Newmark decided to sever the relationship. Buckmaster sent an e-mail entitled
“Our Thoughts” to eBay executives requesting that the parties “gracefully unwind the
relationship.”77 In the e-mail, Buckmaster stated:
. . . While our great esteem for and gratitude toward you [Whitman], Pierre [Omidyar]
and eBay remain unchanged, it is my sad duty to report that we are no longer comfort-
able having eBay as a shareholder, and wish to explore options for our repurchase, or
for otherwise finding a new home for these shares.
A key consideration in our evaluation of eBay as a potential shareholder was the oft-
repeated assurance that you folks were not interested in being involved with craigslist
unless we were completely comfortable with eBay as a shareholder. Another critical fac-
tor was your personal assurance to us, should we find ourselves at odds someday, that
the ability to gracefully unwind the relationship was essential.
Given what we know of the renowned eBay values, e.g., ‘We encourage you to treat others
the way you want to be treated’, we are hopeful that you will put yourselves in our shoes,
consider our request in a spirit of stewardship toward the craigslist community, and work
with us toward an amicable parting of ways beneficial to both of our communities.78
eBay’s CEO, Meg Whitman responded on July 23, 2007 with the following e-mail:79


Noting that Whitman appeared unwavering in her desire to acquire all of craigslist,
Newmark and Buckmaster began to strategize with their attorney to contemplate what
they might do if eBay could not be convinced to sell their shares in craigslist.80
After a lengthy six-month consultation with counsel, Buckmaster and Newmark
decided to execute a three-tiered strategy designed to force eBay to sell their shares.81
The strategy consisted of three strategic actions.
1. Implementation of a staggered board
A staggered board refers to a board of directors where each director has a
staggered term. The term of service would be the same, but terms begin in
different years.82 With this change, craigslist directors would no longer be
elected all at once in a single given year, but would be divided into one class,
only one of which would be elected in any given year. This change effectively
negated this purpose of the cumulative voting previously agreed on as a pro-
tection for eBay as the minority shareholder. While the cumulative voting
policy remained unchanged, it could not be effectively used with a staggered
board. Since there would never be more than one director elected in a given
year, the power to cumulate vote and votes them all for one candidate would
have no effect. eBay would therefore never be able to unilaterally elect a mem-
ber of the board.
2. Approval of a shareholder rights plan (the “poisonous pill”)
A shareholder rights plan was often used as a measure to stave off a hostile
takeover. The rights plan would allow shareholders of a company targeted in
a hostile takeover to purchase shares in the target company at a deeply dis-
counted price upon the activation of certain trigger or triggers.83 If the hostile
takeover was successful, the rights plan could then allow the same shareholders
to buy new additional shares at a price well below market value. The goal of a
shareholder rights plan was to devalue the investment in the target company
so greatly that it would become extremely expensive, and therefore dissuade
the acquiring company from going forward with the acquisition. For this
reason, it was often referred to as a “poison pill.” 84
The craigslist rights plan allowed the shareholder to buy two shares of
craigslist stock at $0.00005 per share upon the occurrence of either of two
triggers: 1) an acquisition by Buckmaster, Newmark or eBay making them
the beneficial owner of 0.01 percent of additional craigslist shares or 2) the
acquisition of shares by anyone other than Buckmaster, Newmark, or eBay,
causing that person to become a beneficial owner of 15 percent or more of
craigslist’s outstanding shares. Under the rights plan, a person was considered
a beneficial owner of:
• Shares they outright owned
• Shares owned by an affiliate or associate, and/or
• Shares owned by any person with whom one had an agreement, arrange-
ment, or understanding for the purpose of acquiring, holding, voting, or
disposing of shares.85
3. Right of First Refusal/Dilutive issuance
The final action in Buckmaster and Newmark’s three-part strategy was a new
right of first refusal signed by Buckmaster, Newmark, and craigslist, Inc. The
agreement would give Buckmaster and Newmark one newly issued craigslist


share for every five shares over which they granted a right of first refusal in favor
of craigslist.86 Since this would increase the number of outstanding craigslist
shares and also increase Buckmaster and Newmark’s individual shares without
increasing the shares of eBay in the same proportion, the effect would be to
dilute eBay’s shares. Dilution occurs when a company issues additional shares
of stock without increasing the shares of current shareholders in an amount
equal to their current proportion of ownership, which decreases the value
of ownership in a corporation.87 If exercised, this right of first refusal would
dilute eBay’s shares to 24.9 percent, just shy of the 25 percent eBay would
mathematically need to elect a board member through cumulative voting.88
The staggered board amendment had already been put in place to prevent
eBay from electing a board member; however, the right of first refusal agree-
ment provided an extra measure of protection against eBay ever being able to
elect a board member.89 This agreement was signed unilaterally and without
informing eBay by Buckmaster and Newmark individually and in their capac-
ity as majority shareholders on behalf of craigslist, Inc.90
craigslist moved forward with these actions on January 2, 2008.91 The combination of
these actions meant that eBay was now unable to unilaterally elect a member to the
craigslist board, rendering them essentially powerless to make any decisions at craig-
slist.92 craigslist informed eBay of their actions on January 3, 2008. eBay responded by
filing a lawsuit on April 22, 2008 against Buckmaster and Newmark personally in their
capacities as directors and majority shareholders.93
The Lawsuit
Since craigslist was incorporated in Delaware, eBay filed suit in the Delaware state
court system, specifically the Delaware Court of Chancery. The Delaware Court of
Chancery served as a court of equity, and heard matters related to corporate law, trusts,
estates, and other fiduciary matters. 94 The law on fiduciary duty that would apply to
the case was well settled.
Who owed a duty?

A fiduciary was defined as a person placed in a position of trust, one invested with
rights and powers to be exercised for the benefit of another person.95 All members of
the board of directors were considered fiduciaries of the corporation’s stockholders.96
In addition, all controlling stockholders were considered fiduciaries of their minority
stockholders.97 A shareholder owning more than half of the shares in a corporation was
considered a controlling stockholder.98 While neither Buckmaster nor Newmark alone
were majority shareholders, the law treated treated them as majority shareholders as
their voting agreement gave them controlling voting power.99
What duty was owed?

Fiduciaries had two primary duties in the state of Delaware: the duty of care and the
duty of loyalty.100 The duty of care stated that directors and controlling stockholders
must inform themselves of all relevant information and act with care in the best inter-
est of the corporation.101 The duty of loyalty required the directors and controlling
stockholders to act in good faith and put the interests of the corporation above their


own personal interests.102 The case of Aronson v. Lewis established the principle that
“directors can neither appear on both sides of a transaction, nor expect to derive any
personal financial benefit from it in the sense of self-dealing, as opposed to a ben-
efit which devolves upon the corporation or all stockholders generally.”103 Self-dealing
consisted of any action taken by a fiduciary for personal gain rather than for the benefit
of the corporation.104
How were fiduciary duties breached?

In determining whether they had breached their fiduciary duties, each of Buckmaster
and Newmark’s 2008 actions would be reviewed by the court using a different legal
standard.
The Rights Plan would be reviewed using the standard established by the court
in Unocal Corporation v. Mesa Petroleum Company (see Appendix 2).105 Sometimes
referred to as the intermediate enhanced scrutiny test, the Unocal test was two-pronged
and requires directors to 1) identify the proper corporate objectives served by their
actions, and 2) justify their actions as reasonable in relationship to those objectives.106
Therefore, Buckmaster and Newmark would have to prove that their implementation
of the Rights Plan served a proper corporate objective and that said implementation
was a reasonable method of addressing that objective.
The staggered board amendment would require analysis under the business judg-
ment rule (see Appendix 2).107 Under the business judgment rule, the court presumes
that in making a business decision on behalf of the corporation, the directors of a
corporation acted on an informed basis, in good faith, and in the honest belief that
the action taken was in the best interests of the company.108 In light of this standard,
Buckmaster and Newmark would have to prove that the 2008 Board Actions were
implemented on an informed basis, in good faith, and in the honest belief that they
were in the best interest of craigslist, Inc. as a whole.
Finally, the right of first refusal/dilutive issuance would be reviewed using the entire
fairness standard (see Appendix 2). This standard of review would require Buckmas-
ter and Newmark to prove that the 2008 Board Actions were fair to all shareholders.
There were two requirements that had to be proven in order to demonstrate that a
transaction was entirely fair. Directors must demonstrate that the transaction was: 1)
effectuated at a fair price, and 2) the product of fair dealing.109 Under this standard,
Buckmaster and Newmark would have to prove that the transaction was economically
fair to eBay. In addition, Buckmaster and Newmark would have to prove that they
dealt with eBay in an equitable manner; meaning that the timing, negotiation, struc-
ture, and approval process of the transaction were fair to eBay.110
Settle or Defend: The Decision

After reading the memorandum from outside counsel and knowing what would have
to be proven to successfully defend the lawsuit, Buckmaster and Newmark now had to
decide whether to defend the suit or to avoid litigation by settling out of court.


Appendix 1: Available Choices of Entity for Companies

The following provides a brief description of the types of organizations that were avail-
able choices of entity for craigslist, Inc. at the time of formation in 1995.
Nonprofit Corporation—a nonprofit corporation is a corporation that orga-
nized for purposes other than realizing a profit. Often organized for charitable, social,
educational, or religious purposes, nonprofit corporations are operated by a Board
of Directors and do not have shareholders. Nonprofits may generate an unlimited
amount of revenue, but pursuant to federal and state law, are not permitted to retain
revenue as profit after paying expenses.111
Corporation—A group of persons or other entities organized according to state
law and operating with all the legal rights of a natural person. Corporations can sue
and be sued, own property, and be prosecuted for crimes. Traditional for-profit cor-
porations are often referred to as C-Corps to distinguish them from S Corporations
(discussed below). Corporations are owned by shareholders who indirectly manage
the company through the election of the Board of Directors. The Board of Directors
is responsible for general oversight of the company and for hiring and managing the
officers of the corporation. The officers are then responsible for the direct, day-to-
day-management of the corporation. The corporation itself pays taxes quarterly and
individual shareholders also pay taxes on dividends received annually via their personal
tax returns.112
S Corporation—S Corporations (“S-Corps”) are for-profit corporations organized
pursuant to Subchapter S of the Internal Revenue Code. S-Corps are distinguished
from C-Corps in that they are not taxed at the corporate level. Rather they feature
pass-through taxation similar to partnerships and limited liability companies (see
below). In order to qualify as an S-Corp, the corporation must:
• Be a domestic corporation (one that is organized in the United States)
• Have only the type of shareholders permitted by the IRS, which include
individuals, certain trusts, and estates and does not include partnerships cor-
porations or nonresident aliens
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e., certain financial institutions, insur-
ance companies, and domestic sales corporations conducting business
internationally).113
Partnership—Partnerships are formed in cases where two or more voluntarily carry
on business for a profit. Partnerships are owned by general partners who share prof-
its and losses proportionally pursuant to their partnership agreement. Partners have
unlimited personal liability and are taxed individually via their personal tax returns—
the partnership does not pay taxes as an entity. This is often referred to as pass-through
or flow-through taxation.114
Limited Partnership—Limited Partnerships are a variation on the partnership
form where the partnership consists of at least one general partner and at least one
limited partner. The general partner is responsible for the day-to-day management
of the partnership and has unlimited personal liability. The limited partner is not
involved in the daily operations of the company, and has only limited liability up to
the amount of their capital contribution. Both the general and the limited partner are
taxed individually.115


Limited Liability Partnership—A limited liability partnerships (“LLP”) is a spe-

cial type of limited partnership where partners have limited personal liability up to the
amount of their capital contribution to the partnership.116
Limited Liability Company—a limited liability company (LLC) is a hybrid orga-
nization formed by members as a for-profit entity. Limited liability companies are
managed either by all members of the company (member-managed) or by certain
members designated as managers (manager-managed). Limited liability companies are
not taxed at the entity-level; rather, members are taxed individually via their personal
tax returns. All members of limited liability companies have limited liability to the
extent of their capital contribution to the company.117


Appendix 2: Relevant Case Law

1. Profit Maximization
Dodge v. Ford Motor Co. 170 N.W. 668 (Mich. 1919)
Facts: Henry Ford wanted to end a plan to pay our special dividends to sharehold-
ers. His desire was to reinvest that money into the company and use it to hire more
employees and build more factories. His rationale for doing so was to reduce the price
of his cars so that they would be more affordable to the average citizen. In the litiga-
tion, he was quoted as saying, “My ambition is to employ still more men, to spread the
benefits of this industrial system to the greatest possible number, to help them build up
their lives and their homes. To do this, we are putting the greatest share of our profits
back in the business.”
The minority shareholders of Ford Motor Company, among them the Dodge
brothers, were opposed to this plan and sued to prevent the reinvestment of profits
back into the company.
Issue: Whether the reinvestment of profit into the company was a breach of fidu-
ciary duty, given that the purpose of the reinvestment was altruistic in nature, which
may indicate that it violates the duty of management to maximize profits.
Relevant Rule of Law: The primary duty of management of the corporation must
be to maximize profit for its shareholders.
Holding: The trial court found in favor of Dodge and affirmed. In its decision,
the Supreme Court of Michigan stated that it is the primary function of businesses
to make a profit for its shareholders. While directors enjoy some latitude under the
business judgment rule118 to make decisions, including the pricing of products and
when and in what amount to declare a dividend, that discretion does not extend to the
reduction of profits or non-distribution of profits to shareholders for the sole purpose
of benefitting the public. The court stated that profit-maximization does not have to
be the sole purpose of the company. An “incidental humanitarian expenditure for the
benefit of the employees” is actually permissible. However, primary duty of manage-
ment of the corporation must be to maximize profit for its shareholders.
Interesting Note: Ford knew that the Dodge brothers were using the larger divi-
dends to finance a rival car company. It is alleged that although Ford’s actions were
altruistic on the surface, they had the dual purpose of eliminating the competition by
cutting off a large source of its capital.
2. Intermediate Enhanced Scrutiny Test

Unocal Corp. v. Mesa Petroleum Corp., 493 A.2d 946 (De. 1985)
Facts: Mesa Petroleum Corporation (“Mesa”) made tender offer (an attempt at a hos-
tile takeover) of Unocal Corporation (“Unocal”). The tender offer was two-tiered with
the first tier being an offer to buy shares from existing Unocal shareholders at $72 per
share. If shareholders refused the first tier, sales of shares in the second tier would be
purchased with junk bonds119 instead of cash, a much riskier and therefore less attrac-
tive deal. In order to stave of the tender offer, Unocal initiated its own “self-tender
offer” by offering to repurchase stock from all existing shareholders except Mesa at
$72 per share. While it was an effective tactic to avoid the takeover by Mesa, it had the
adverse effect of creating a significant amount of debt for the corporation. Mesa then


sued, arguing that the Unocal board of directors was acting not in the best interest of
the corporation, but in a last ditch effort to save their jobs.
Issue: Whether Unocal could exclude Mesa from the repurchase of its shares, given
that Mesa had initiated a hostile takeover, which may indicate that there was a legiti-
mate threat to Unocal’s existence.
Relevant Rule of Law: When the board of directors uses a takeover defense, there
is an enhanced duty to show that: 1) the actions are in response to a legitimate threat
to corporate policy and effectiveness and 2) that the actions are reasonably related to
the threat posed.
Holding: The Delaware Supreme Court reversed the decision, finding that Unocal’s
directors had reasonable grounds for believing that Mesa’s actions were a legitimate
threat to Unocal’s continued existence, and therefore allowed the exclusion of Mesa
from the repurchase of its shares.
3. The Business Judgment Rule

Aronson v. Lewis, 473 A.2d 805 (Del. 1984).
Facts: Harry Lewis (“Lewis”) was a minority stockholder in Meyers Parking System,
Inc. (“Meyers”). Leo Fink (“Fink”) was a director and 47 percent shareholder of Mey-
ers. The Board approved a very lucrative employment agreement between Meyers and
Fink and also approved and made several interest-free loans to Fink totaling $225,000.
Lewis sued Fink and the other directors, all of who had been personally selected by
Fink, challenging the board’s actions as having no business purpose and being a waste
of corporate assets.
Issue: Whether a plaintiff can initiate a derivative suit without first making demand
to defendant directors.
Relevant Rule of Law: There is a presumption that in making a business decision,
the directors of a corporation acted on an informed basis in good faith, and in the
honest belief that the action was taken in the best interests of the company. The busi-
ness judgment rule only applies to situations where the directors are disinterested and
independent. It does not apply to situations where the director stands on both sides
of the transaction and stands to gain a personal financial benefit from the transaction.
Holding: The decision was reversed. In order to overcome the presumption of
the business judgement rule, there must be reasonable doubt that the 1) directors are
disinterested and independent, and 2) the challenged transaction was otherwise the
product of a valid exercise of business judgment. Since there was no reasonable doubt
proven and since Lewis failed to make a demand to the directors before filing suit, the
actions of the Meyers board stand.
4. The Entire Fairness Test

Weinberg v. UOP, Inc., 457 A.2d 701 (Del. 1983).
Facts: William Weinberger (“Weinberger”) was a minority UOP, Inc. (“UOP”) share-
holder who sued to challenge a cash-out merger between UOP and Signal Companies,
Inc. (“Signal”). Weinberger’s assertion was that Signal breached its fiduciary duties by
failing to disclose information relevant to the merger to non-Signal UOP directors and
minority shareholders.


Issue: Whether Signal breached their fiduciary duty by failing to disclose relevant
information to non-Signal directors and minority shareholders.
Relevant Rule of Law: The business judgment rule is the default rule regarding
board decisions, however, it only applies to decisions made by disinterested directors.
The entire fairness standard applies to transactions where the majority of the board has
a conflict of interest or stands to receive a material benefit, or an individual director or
stockholder has financial incentives adverse to the company or controls or dominates
the board as a whole. The entire fairness standard states that a transaction must consist
of 1) fair dealing, and 2) fair price.
Fair dealing relates to:
• the timing of the transaction,
• how it was initiated, structured, negotiated, and disclosed to the directors, and
• how the approvals of the directors and the stockholders were obtained.
Fair price relates to economic and financial considerations of the proposed merger,
including all relevant factors such as:
• assets,
• market value,
• earnings,
• future prospects, and
• any other elements that affect the intrinsic or inherent value of a company’s
stock.
Holding: The decision was reversed. The court found that the failure to disclose
key information constituted a lack of fair dealing and therefore a breach of fiduciary
duty on the part of Signal as the majority shareholder.
Notes
1. eBay Holdings, Inc. v. Newmark, 16 A.3d 1, 6 (Del. Ch. 2010).
4. Tweney, D. (2007, June 5). “How Craig Newmark built craigslist with ‘no
vision whatsoever,’” Retrieved from Wired. Retrieved from http://www.wired.
com/2007/06/no_vision_whats/.
5. craigslist.com. Retrieved October 4, 2016 from https://www.craigslist.org/
about/factsheet.
6. Ryssdal, K. (2008, April 21). “Service comes first for craigslist CEO.” Market-
place. Retrieved June 10 from http://www.marketplace.org/2008/04/21/tech/
corner-office/service-comes-first-craigslist-ceo.
7. Ibid.
8. Glaser, M. (2004, June 3). “‘Nerd Values’ help propel tiny craigslist into classi-
fieds threat.” Online Journalism Review. Retrieved June 24, 2016 from https://
www.craigslist.org/about/press/nerdvalues.
9. Ibid.
10. “Monetize.” Investopedia. Retrieved from: http://www.investopedia.com/terms/
m/monetize.asp.


11. craigslist.com. Retrieved from http://www.craigslist.org/about/mission_and_

history?lang=en&cc=us.
12. Ibid.
13. Ibid.
14. eBay Holdings Inc. v. Newmark, et al. Civil Action No. 3705-CC, Tr. at 1572:
23-1573:3.
15. Omidyar, P. (2008, March). “Birth of Auction Web.” Retrieved August 4, 2015
from http://oninnovation.com/videos/detail.aspx?video=1265&title=Birth%
20of%20Auction%20Web.
16. eBay, Inc. (1998, July 15). Form S-1, Registration Statement. Retrieved August
4, 2015 from http://www.sec.gov/Archives/edgar/data/1065088/0001012870-
98-001814.txt.
17. eBay Inc., (2009, December 31). List of Subsidiaries as of December 31,
2009. Retrieved August 4, 2015 from http://www.sec.gov/Archives/edgar/
data/1065088/000119312510033324/dex2101.htm.
18. eBay, Inc. (2006, April 24). Form 10-Q, Quarterly Report for the Quarter
Ending March 31, 2006. Retrieved from http://www.sec.gov/Archives/edgar/
data/1065088/000089161806000175/f19639e10vq.htm#004.
19. eBay Holdings, Inc. v. Newmark, 16 A.3d 1, 10–11 (Del. Ch. 2010).
20. Ibid.
23. Bloomberg Tech (2007, May 5). “craigslist’s ongoing success story.” Bloom-
berg. Retrieved from http://www.bloomberg.com/news/articles/2007-05-15/
craigslists-ongoing-success-storybusinessweek-business-news-stock-market-
and-financial-advice.
24. eBay Holdings Inc. v. Newmark, et al. Civil Action No. 3705-CC, Tr. at
2228:12–17.
28. Ibid.
29. Hals, T., and Sage, A. (2009, December 10). “craigslist founder testified felt
betrayed by eBay.” Reuters. Retrieved from http://www.reuters.com/article/
us-ebay-craigslist-idUSTRE5B75QE20091210.
30. Ibid.
33. Hals, T., and Sage, A. (2009, December 10). “craigslist founder testified felt
betrayed by eBay.” Reuters. Retrieved from http://www.reuters.com/article/
us-ebay-craigslist-idUSTRE5B75QE20091210.
34. Ibid.


36. eBay Holdings Inc. v. Newmark, et al. Civil Action No. 3705-CC, PTX-19
[e-mail sent by Newmark to Buckmaster and Ed Wes (May 25, 2004)].
37. eBay Holdings, Inc. v. Newmark, 16 A.3d 1, 15 (Del. Ch. 2010) citing e-mail
to eBay executives stating, “anything we pay to [Knowlton] we also have to pay
to [Newmark] and [Buckmaster].”
39. Ibid.
40. “What is a Minority shareholder.” Retrieved from http://thelawdictionary.org/
minority-shareholder/.
42. Ibid.
43. Ibid.
44. Noncumulative voting. (2006). In Black’s Law Dictionary. 3rd Pocket Ed. St.
Paul, MN: Thomson-West.
45. Cumulative voting. (2006). In Black’s Law Dictionary. 3rd Pocket Ed. St. Paul,
MN: Thomson-West.
47. Ibid.
49. eBay Holdings Inc. v. Newmark, et al. Civil Action No. 3705-CC, PTX-73 (the
“Shareholders’ Agreement” (Aug. 9, 2004)) §4.3.
51. Preemptive Right. (n.d.). West’s Encyclopedia of American Law, 2nd edition.
Retrieved June 25, 2016 from http://legal-dictionary.thefreedictionary.com/
Preemptive+Right.
53. Walker, D.I. (August 1999). Rethinking Rights of First Refusal. Stanford Jour-
nal of Law, Business & Finance, 5. Retrieved June 25, 2016 from http://ssrn.
com/abstract=188208.
54. eBay Holdings Inc. v. Newmark, et al. Civil Action No. 3705-CC, PTX-73 [the
“Shareholders’ Agreement” (Aug. 9, 2004)] §6.2, §7.2.
[e-mail from Garrett Price to eBay executives (June 24, 2004)].
[(the “Shareholders’ Agreement” (Aug. 9, 2004))] §8.3.
59. Ibid.
60. Ibid.
61. Ibid.


63. Ibid.
64. eBay Holdings Inc. v. Newmark, et al. Civil Action No. 3705-CC, DX-087 (pre-
sentation materials for February 1, 2005 Craigslist board meeting at 8484.)
65. eBay Holdings Inc. v. Newmark, et. al. Civil Action No. 3705-CC, Tr. at 201:6
(testimony of Omidyar).
66. Ibid.
[e-mail sent by eBay executive Garrett Price to Buckmaster and Newmark
(March 21, 2005)].
(presentation materials for the materials for the March 28, 2005 Craigslist
board meeting) at 45859.
70. Ibid.
72. eBay Holdings Inc. v. Newmark, et al. Civil Action No. 3705-CC, DX-488
[e-mail from eBay In-House Counsel Brian Levey to Ed Wes containing eBay’s
proposed changes to the previously negotiated Shareholders’ Agreement (June
22, 2007)].
73. Ibid.
75. Ibid.
76. Ibid.
[e-mail sent by Buckmaster to eBay CEO Meg Whitman (July 12, 2007)].
78. Ibid.
79. eBay Holdings Inc. v. Newmark, et al. Civil Action No. 3705-CC, DX-697
[e-mail from Meg Whitman to Buckmaster (July 23, 2007)].
81. Ibid.
82. Staggered Terms. (n.d.). Farlex Financial Dictionary. Retrieved June 12, 2016
from http://financial-dictionary.thefreedictionary.com/staggered+board.
83. Poison pill (n.d.). West’s Encyclopedia of American Law, 2nd Ed. Retrieved June
12, 2016 from http://legal-dictionary.thefreedictionary.com/poison+pill.
84. Poison pill. (n.d.). Farlex Financial Dictionary. Retrieved June 12 from http://
financial-dictionary.thefreedictionary.com/Poison+Pill.
85. eBay Holdings, Inc. v. Newmark, 16 A.3d 1, 53, 54 (Del. Ch. 2010).
[Right of First Refusal Agreement (Jan. 2, 2008)].
87. Dilution. (n.d.) Dictionary of Financial Terms. Retrieved June 20, 2016 from
http://financial-dictionary.thefreedictionary.com/dilution.
[Right of First Refusal Agreement (Jan. 2, 2008)].



91. eBay Holdings Inc. v. Newmark, et. al. Civil Action No. 3705-CC, PTX-360
[Amended and Restated Bylaws of Craigslist, Inc. (Jan. 2, 2008)]; PTX-361
[Second Amended and Restated Certificate of Incorporation of Craigslist, Inc.
(Jan. 2, 2008)].
93. Ibid.
94. Delaware Courts. (n.d.). An Overview of the Delaware Court System. Retrieved
June 29, 2016 from http://courts.delaware.gov/overview.aspx
95. Fiduciary. (n.d.). The Law Dictionary: Featuring Black’s Law Dictionary Free
Online Legal Dictionary, 2nd Ed., Retrieved August 29, 2015, from http://
thelawdictionary.org/fiduciary/.
96. Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939).
97. Abraham v. Emerson Radio Corp., 901 A.2d 751, 759 (Del. Ch. 2006) (stating
that “the premise for contending that the controlling stockholder owes fidu-
ciary duties in its capacity as a stockholder is that the controller exerts its will
over the enterprise in the manner of the board itself.”)
98. Controlling Shareholder Law & Legal Definition. U.S. Legal Definitions.
Retrieved June 11, 2016 from http://definitions.uslegal.com/c/controlling-
shareholder/.
99. eBay Holdings Inc. v. Newmark, et al. Civil Action No. 3705-CC, PTX-74.
Buckmaster-Newmark Voting Agreement. (Aug. 9, 2004).
100. Gantler v. Stephens, 965 A.2d 695 (Del. 2009).
101. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).
102. Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939) stating “[c]orporate officers
and directors are not permitted to use their position of trust and confidence
to further their private interests.”; see also Schoon v. Smith, 953 A.2d 196, 206
(Del. 2008) (stating same).
104. Self-dealing. (n.d.). Wex Legal Dictionary. Retrieved June 15, 2016 from
https://www.law.cornell.edu/wex/self-dealing.
105. 493 A.2d 946 (Del. 1985).
106. Mercier v. Inter-Tel (Delaware), Inc., 929 A.2d 786, 807 (Del. Ch. 2007).
108. Sinclair Oil Corp. v. Levien, 290 A.2d 717,720 (Del. 1971).
110. Ibid.
111. Nonprofit Corporation. (n.d.). Wex Legal Dictionary. Retrieved June 18, 2016
from https://www.law.cornell.edu/wex/non-profit_organizations.
112. Corporation (2006). Collins Dictionary of Law. Retrieved June 22, 2016 from
http://legal-dictionary.thefreedictionary.com/corporation.


113. S Corporations (n.d.). Retrieved June 22, 2016 from https://www.irs.gov/

businesses/small-businesses-self-employed/s-corporations.
114. Partnership (n.d.). Wex Legal Dictionary. Retrieved June 18, 2016 from https://
www.law.cornell.edu/wex/partnership.
115. Limited partnership. Wex Legal Dictionary. Retrieved June 20, 2016 from
https://www.law.cornell.edu/wex/limited_partnership.
116. Limited Liability Partnership. (2008). West’s Encyclopedia of American Law, 2nd
edition. Retrieved June 25, 2016 from http://legal-dictionary.thefreedictionary.
com/limited+liability+partnership.
117. Limited Liability Company. (2008). West’s Encyclopedia of American Law, 2nd
edition. Retrieved June 23, 2016 from http://legal-dictionary.thefreedictionary.
com/Limited+Liability+Company.
118. The business judgment rule states that in analyzing a director’s alleged breach
of the duty of care, the court will not second-guess the director’s actions as
long as those actions were made, 1) in good faith, 2) with the care that a rea-
sonably prudent director would use, and 3) with the reasonable belief that the
actions were in the best interests of the corporation.
119. A high-risk, high yield security offered by a corporation; often to finance a
hostile takeover.


Exhibit A: eBay and craigslist Brief Timeline
craigslist is founded eBay is founded as AuctionWeb

1995 1995 1995
Knowlton demands monetization

Buckmaster and Newmark refuse
2002
2002 to monetize
2002
Knowlton threatens to sell his
shares
July 2003 2003 Buckmaster meets with potential
buyers of Knowlton’s shares
Nov-Dec 2003
eBay and Knowlton sign letter of
intent for purchase of his shares
May 2004 2004 eBay approaches Knowlton to
buy his shares
eBay assures Buckmaster and January 2004
Newmark they are content with a
minority stake only 2004
July 2004 eBay seeks a larger stake caus-
ing negations to break down
June 2004
eBay purchases Knowlton’s shares 2004
August 2004
eBay and craigslist sign:
Buckmaster and Newmark sign • Stock purchase agreement
voting agreement 2004 • Shareholder’s agreement
August 2004 August 2004
eBay seeks to clarify craigslist

expectations
2005 First board meeting of the new
craigslist; eBay makes sugges-
March 2005 tions and is not well-received
February 2005
eBay launches Kijiji in U.S. 2007
June 2007
craigslist sends eBay notice of
competitive activity
Buckmaster requests unwinding
of the relationship with eBay
2007 June 2007
July 2007
Whitman responds with desire to

craigslist implements 2008 board 2007 buy all of craigslist
actions:
July 2007
• Staggered board
• Rights plan
• Right of first refusal 2008 eBay files lawsuit
January 2008 April 2008
Source: eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1 (Del. Ch. 2010).


Exhibit B: The Companies-at-a-Glance
craigslist eBay
Mission Statement
craigslist is about: At eBay, our mission is to provide a global
• Giving each other a break, getting the word online marketplace where practically anyone
out about every day, real-world stuff. can trade practically anything, enabling eco-
nomic opportunity around the world.
• Restoring the human voice to the Internet,
in a humane, non-commercial environment.
• Keeping things simple, common-sense,
down-to-earth, honest, and very real.
• Providing an alternative to impersonal, big-
media sites.
• Being inclusive, giving a voice to the disen-
franchised, democratizing . . .
• Being a collection of communities with simi-
lar spirit, not a single monolithic entity.
Source: craigslist Corporate Website Source: eBay Corporate Website
Size
• Number of Employees: 3 • Number of Employees: Approx. 16,000
• Number of Offices: 1 • Number of Offices: 76
• Location(s): San Francisco, CA • Location(s): North America (32), Europe
(27), Middle East (2), Africa (1), Asia
Pacific (13), Australia (1)
Source: craigslist Corporate Website Source: eBay Corporate Website
Financials
craigslist Estimated Revenue (2007–2008) eBay Revenue (2007–2008)
• 2007: $55 million • 2007: $7.7 billion
• 2008: $81 million • 2008: $8.5 billion
craigslist Net Profit (2007–2008) eBay Net Profit (2007–2008)
• 2007: $ unavailable • 2007: $348 million
• 2008: $ unavailable • 2008: $1.8 billion
Source: www.businessinsider.com Source: eBay 2007 and 2008 Annual Report


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Strange Bedfellows: eBay, craigslist and

Background—A Tale of Two Companies

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To prevent any attempt at a takeover by eBay, Buckmaster and Newmark under-

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The New craigslist

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The Launch of Kijiji

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eBay a Notice of Competitive Activity, pursuant to Section 8.3 of the Shareholders’

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Who owed a duty?

What duty was owed?

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Settle or Defend: The Decision

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Appendix 1: Available Choices of Entity for Companies

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Limited Liability Partnership—A limited liability partnerships (“LLP”) is a spe-

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Appendix 2: Relevant Case Law

2. Intermediate Enhanced Scrutiny Test

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3. The Business Judgment Rule

4. The Entire Fairness Test

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11. craigslist.com. Retrieved from http://www.craigslist.org/about/mission_and_

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89. eBay Holdings, Inc. v. Newmark, 16 A.3d 1, 59 (Del. Ch. 2010).

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113. S Corporations (n.d.). Retrieved June 22, 2016 from https://www.irs.gov/

This document is authorized for use only by Yos Sunitiyoso in 2017.

Exhibit A: eBay and craigslist Brief Timeline

craigslist is founded eBay is founded as AuctionWeb

Knowlton demands monetization

eBay seeks to clarify craigslist

Whitman responds with desire to

This document is authorized for use only by Yos Sunitiyoso in 2017.

Exhibit B: The Companies-at-a-Glance

Source: craigslist Corporate Website Source: eBay Corporate Website

Source: craigslist Corporate Website Source: eBay Corporate Website

Source: www.businessinsider.com Source: eBay 2007 and 2008 Annual Report

This document is authorized for use only by Yos Sunitiyoso in 2017.

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