* Mixed ruling reinstates stake eBay holds in rival
* Decision blocks eBay from Craigslist board
* Still pending is Craigslist lawsuit in San Francisco
(Revises first sentence, adds comments by judge, lawyers and
eBay, other background, adds SAN FRANCISCO to dateline)
By Tom Hals and Alexandria Sage
WILMINGTON, Del./SAN FRANCISCO, Sept 9 A judge
on Thursday reinstated eBay Inc's (EBAY.O) 28.4 percent stake
in Craigslist, but allowed the classifieds site to keep eBay
off its board.
The mixed ruling in Delaware's Chancery Court gave no clear
victory to either of the companies, whose relationship turned
from cozy to competitive and ended up in court in 2008.
Still to be litigated is a lawsuit Craigslist filed in San
Francisco against eBay alleging its larger rival used its board
seat to glean confidential information about the classified ad
EBay sued its smaller rival in 2008, claiming a rights plan
Craigslist adopted diluted eBay's stake from 28.4 percent to
"More fortunate than Goliath, eBay leaves this field with
only a gash across its forehead; less fortunate than David,
Craigslist leaves this field with something less than total
victory," wrote Chancellor William Chandler III of Delaware's
Court of Chancery in his opinion.
EBay, which has estimated Craigslist's value at several
billions of dollars, has always maintained that the courts
would reinstate its true stake.
Craigslist, meanwhile, has been anxious to protect its
decision-making and trade secrets after eBay launched a
competing ad site, and Thursday's ruling will keep eBay out of
the classified company's boardroom.
EBay claimed victory in a statement released on Thursday
which did not mention the board seat.
"EBay brought this suit to protect its own shareholders and
preserve its valuable investment in Craigslist," it said.
Craigslist did not immediately respond to a request for
James Cox, a professor at Duke Law School, said there is
precedent for companies adopting the staggered board elections
used by Craigslist to seal its board room to eBay.
"They're just locked out," he said of eBay.
Charles Elson, a professor who specializes in corporate
governance at the University of Delaware, said that state's law
protects the rights of minority shareholders. "Actions that
compromise rights of minorities is problematic," he said.
"They have the right to a staggered board, but not to a
rights plan that dilutes minority shareholders out of
In 2004, sensing a growth vehicle, eBay paid $32 million
for a 28.4 percent interest in Craigslist -- paying both
founder Craig Newmark and Chief Executive Jim Buckmaster $8
million each in the bargain.
But relations between the two companies soon soured after
the launch of eBay's U.S. classifieds business, Kijiji, in
Craigslist responded by diluting that company's stake to
24.85 percent in what eBay called "a coercive plan" that
stripped them of a board seat. Craigslist executives it said
was a self-protective measure well within its legal rights.
LAWSUIT IN THE WINGS
The conflict is being closely watched, as case law
pertaining to private companies that adopt protective plans is
A week-long trial held in December in Delaware Chancery
Court exposed a clash of corporate cultures, broken promises
In one instance, Buckmaster said one of eBay's dealmakers
had told him that then-eBay CEO Meg Whitman -- currently
running for governor of California -- had an "evil" side and
could be a "monster" when angered. [ID:nN14184415]
The relationship began with a wooing period in which eBay
executives, including Whitman and founder Pierre Omidyar,
assured Craigslist that the two companies' values were aligned.
Newmark and Buckmaster both testified that they were assured
they could bow out of the relationship should it not work out.
But the differences between the two companies were soon
revealed, with eBay executives complaining about "amateurish
board meetings" at Craigslist, and the latter's complaints that
eBay was too focused on profit and had an eye for eventually
acquiring the company.
Whitman testified that she considered classifieds an
important area in which eBay could expand and originally
considered Craigslist the company's "play" in that market.
The Delaware decision comes a week after Craigslist said it
had dropped its "adult services" listings that many U.S.
politicians have criticized, claiming they encourage
prostitution and human trafficking. [ID:nN04166018]
The case is eBay Domestic Holdings Inc v Newmark, et al,
Delaware Chancery Court, No. 3705-CC.
(Reporting by Alexandria Sage, editing by Matthew Lewis)