Ebay Domestic Holdings, Inc. v. Newmark

16 A.3d 1 (Del Ch. 2010)

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Nature of the Case

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Facts

Ds, Craig, and Jim, started Craigslist as a community service. Thus far, no competing site has been able to dislodge craigslist from its perch atop the pile of most-used online classifieds sites in the United States. craigslist's lead position is made more enigmatic by the fact that it maintains its dominant market position with small-scale physical and human capital. Perhaps the most mysterious thing about craigslist's continued success is the fact that craigslist does not expend any great effort seeking to maximize its profits or to monitor its competition or its market share. Knowlton, a third owner, got in a dispute with Ds over monetization and Ds refused. Knowlton wanted to sell his shares. P learned that Knowlton's shares were in play. P signed a deal to acquire Knowlton's shares for $15 million. P then negotiated with Ds to see what else P could acquire. After three months of negotiations, P agreed to pay $32 million for Knowlton's shares. Knowlton received $16 million of that amount, and Ds each received $8 million. Craig owned 42.6%, Jim owned 29%, and eBay owned 28.4% of craigslist. The stock purchase agreement and a stockholders' agreement were parts of the transaction. Ds also executed a voting agreement (the 'Jim-Craig Voting Agreement') the same day. Craigslist's new charter provided for a three-person board of directors to be elected under a cumulative voting regime. The mechanics of cumulative voting ensured that eBay could use its 28.4% stake in craigslist to unilaterally elect one of the three members to the craigslist board. P realized it would never convince Ds to monetize the list and it developed its own service instead. There was evidence that P used confidential information about Craigslist to do so, and this was in violation of the agreements signed. Also, if P competed, it would lose some of its rights under the Shareholder Agreement. Ds offered to repurchase P’s stock, but P refused. Ds then set about to limit P’s ability to purchase any more shares. Ds implemented a staggered board, a stockholder’s rights plan and an offer to issue one new share of stock in exchange for every five shares on which a stockholder granted a right of first refusal in favor of Craigslist.