UPDATE 4-EBay sues Craigslist over alleged stake dilution

Tue Apr 22, 2008 9:21pm EDT

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(Adds that Craigslist blogger was CEO, paragraph 6)

By Gina Keating

LOS ANGELES, April 22 (Reuters) - EBay Inc, the world's largest online auctioneer, sued Craigslist, a competitor in which it holds an ownership stake, in a dispute over whether the Internet bulletin board tried to blunt eBay's control.

EBay (EBAY.O) alleged in the lawsuit that the board of directors of Craigslist, the Web's dominant classifieds listing service, took "unilateral actions" to dilute eBay's 28.4 percent stake by more than 10 percent, eBay said in a statement.

The suit, filed on Tuesday under seal, asked a Delaware Chancery Court to rescind the unspecified actions to protect eBay's stockholders and preserve its stake in Craigslist.

The suit names as defendants Craigslist founder, Craig Newmark, who runs the company in a famously open-minded style, and Chief Executive Jim Buckmaster. Newmark and Buckmaster are the only members of Craigslist's board of directors.

In a blog posting late on Tuesday, Craigslist said it was "surprised and disappointed" by eBay's allegations, which "came to us out of the blue, without any attempt to engage in dialogue with us."

The blog was written by Buckmaster, a spokeswoman for Craigslist said.

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," the posting said.

Craigslist said it has always treated eBay "very fairly" and plans to continue doing so, despite this "unfortunate development."

EBay bought a minority ownership stake in 2004, and launched its own free online classifieds site, called Kijiji, three years later in the United States.

The two services directly compete in the United States and about a dozen countries, with Kijiji tailoring its ads to young families rather than maintaining a Craigslist-style open marketplace.

An eBay spokeswoman said the disputed board actions concerned "corporate governance issues" and did not involve Kijiji.

She said eBay could reveal no more about its complaint without Craigslist's permission to protect information about privately held Craigslist governed by confidentiality restrictions.

Shares of eBay closed up 26 cents at $30.89 Tuesday on Nasdaq. (Reporting by Gina Keating; editing by Jeffrey Benkoe/Braden Reddall/Gary Hill)

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