M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, September 10, 2010

eBay-Craigslist: Pill Enjoined

 Chandler handed down his decision in the eBay-Craigslist trial and ruled, mostly, in favor of eBay.  According to the Bloomberg report:

The poison pill was enacted “to punish eBay for competing with Craigslist” and not “in response to a reasonably perceived threat or for a proper corporate purpose,” Chandler said in his decision. ...

Trial testimony didn’t establish that Buckmaster and Newmark “acted in good faith and in pursuit of a good corporate purpose when they deployed” the pill, Chandler said. The judge concluded that the pair “resented eBay’s decision to compete with Craigslist” and set up the defense “as a punitive response.”

But it wasn't a complete win for eBay.  eBay had challenged Craigslist's staggerd board as a defensive measure and argued that it too should be evaluated under Unocal.  Chandler didn't bite.  The staggered board was left in place. 

I'm still looking for a copy of the opinion in a form that doesn't require me to pay Lexis $50!  If anyone has it and is willing to share, I'll read it for you!


 BTW: Those of you who took my corporate law final will find the facts in this case oddly familiar.  

 Update:  Thanks to those of you who sent me copies of the opinion - Download EBay v Newmark. Greatly appreciated. 

Update:  You can always count on Francis Pileggi and the Delaware Litigation Blog.  He's got the opinion here. Chandler summarizes the mixed bag opinion in the David v. Goliath case in the following way: 

... the battle in Delaware has not been as one-sided a victory for the smaller contender as was the contest between the fabled Israelite and Philistine: 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.

In applying the Unocal analysis to Craig Newmark and Jim Buckmaster's decision to adopt a rights plan, Chandler focused the threat identified by Jim and Craig (why not Newmark and Buckmaster?).   It appears that they identified the "threat" to be the prospect of eBay or some other corporate behemoth one day turning Craigslist into a money making operation.  Here's how Chandler dealt with that "threat":  

Jim and Craig did prove that they personally believe craigslist should not be about the business of stockholder wealth maximization, now or in the future. As an abstract matter, there is nothing inappropriate about an organization seeking to aid local, national, and global communities by providing a website for online classifieds that is largely devoid of monetized elements. Indeed, I personally appreciate and admire Jim’s and Craig’s desire to be of service to communities.The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. Jim and Craig opted to form craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dollars from eBay as part of a transaction whereby eBay became a stockholder. Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The “Inc.” after the company name has to mean at least that. Thus, I cannot accept as valid for the purposes of implementing the Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders—no matter whether those stockholders are individuals of modest means or a corporate titan of online commerce.  If Jim and Craig were the only stockholders affected by their decisions, then there would be no one to object.  eBay, however, holds a significant stake in craigslist, and Jim and Craig’s actions affect others besides themselves. ...

Directors of a for-profit Delaware corporation cannot deploy a rights plan to defend a business strategy that openly eschews stockholder wealth maximization—at least not consistent with the directors’ fiduciary duties under Delaware law.



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