EBay Considered Craigslist Purchase, Whitman Says (Update3)
By Jef Feeley and Joseph Galante
Dec. 7 (Bloomberg) -- EBay Inc. wanted to acquire Craigslist Inc. when it bought a minority stake in the classified-advertising Web site in 2004, former EBay Chief Executive Officer Meg Whitman told a judge.
Whitman said today the online auctioneer was “looking for new areas of growth” when it got the opportunity to buy a 28 percent stake in Craigslist. She testified at the start of a trial in Delaware state court of EBay’s lawsuit claiming Craigslist officials changed their firm’s stock structure to unfairly reduce the value of EBay’s stake.
“We were very interested in making an acquisition of Craigslist,” Whitman, who is running for governor of California after stepping down as EBay’s CEO last year, told Delaware Chancery Court Judge William B. Chandler III. “We would have loved to buy the whole thing.”
EBay wants Chandler to find that Newmark and Buckmaster violated Delaware corporate law by issuing shares to themselves to dilute EBay’s stake. EBay contends the move allowed the pair to unfairly strip its seat on Craigslist’s board. EBay runs the world’s most-visited e-commerce site, according to Reston, Virginia-based ComScore Inc., an Internet marketing research firm.
Takeover Defense
Craigslist officials counter that the changes were designed to beef up the closely held company’s anti-takeover defenses. They allege Whitman and other EBay officials repeatedly offered to buy Craigslist, which is the most-visited U.S. classifieds site, according to Altamonte Springs, Florida-based Advanced Interactive Media Group LLC.
Craigslist’s lawyers contend that EBay executives used confidential data gleaned from their ties to Craigslist in 2007 to start the U.S. version of Kijiji.com, a competing online classified advertising site. Kijiji means “village” in Swahili.
Kijiji had about 1.7 million users, compared with Craigslist’s 22.2 million in 2008, Florida-based Classified Intelligence LLC said in a report.
Whitman, 53, testified today that EBay paid $32 million for the Craigslist shares owned by a disgruntled investor and made it clear from the start of talks with Buckmaster and Newmark that it was interested in owning the entire firm.
EBay also was considering buying online classified- advertising businesses in Europe at the time, Whitman told the judge.
‘Like The Business’
“I was very interested in the classified business,” Whitman said. “We like the business.”
The former EBay CEO noted that Buckmaster and Newmark got $16 million out of the $32 million the online auctioneer paid to acquire its Craigslist stake. “I know they each ended up with $8 million,” she testified today.
To keep their options open, Whitman said EBay officials refused to enter a non-compete agreement with Craigslist as part of the share purchase.
“We saw this as a pretty big opportunity for EBay,” Whitman testified. “We weren’t prepared to give a non-compete for a minority interest.”
Craigslist officials allege that EBay executives used their seat on Craigslist’s board to gather information about the online-classified site’s “secret sauce,” Michael Rhodes, one of EBay’s lawyers, said today.
Whitman explained that the phrase is used at EBay as “shorthand for the essential ingredients for success in a business.” She denied that EBay officials wrongfully trolled for information about Craiglist’s competitive advantages, which she described as offering “free and local” classified advertising.
‘Wanted Shares Back’
The former EBay CEO also noted that she had no complaints from Buckmaster or Newmark about EBay’s handling of its stake in the company until EBay launched a competing online classified site in the U.S. in 2007.
After that, Buckmaster sent Whitman an e-mail in July 2007 saying he “didn’t want to be partners with us anymore and wanted the shares back,” Whitman said.
Under questioning by Craigslist’s lawyer, Whitman acknowledged that EBay was motivated to buy the shares to keep them out of the hands of online competitors. Whitman added that because Craigslist was closely held, the only way EBay could gain control of it would be through a friendly acquisition.
“We didn’t want anyone else to have the opportunity to invest in this business,” she said under cross-examination. “It was an important investment for EBay.”
California Governor’s Race
Whitman, running for the Republican gubernatorial nomination in California, will be followed on the witness stand by EBay founder Pierre Omidyar, EBay said last week. The trial in Georgetown, Delaware, is slated to last a week.
EBay fell 9 cents to $23.58 at 12:08 p.m. New York time in Nasdaq Stock Market trading. The shares have climbed 69 percent this year.
The Delaware case is EBay Domestic Holdings Inc., v. Craig Newmark, CA3705, Delaware Chancery Court (Wilmington).
To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Joseph Galante in San Francisco at jgalante3@bloomberg.net.
Last Updated: December 7, 2009 12:47 EST |
