Craigslist is one of the most fascinating corporations of the Internet era. It is run with extreme efficiency and at a scale that dwarves the few dozen employees under its employ. The quirkiness of founder Craig Newmark almost harks back to a different ideology. But it’s always the quiet ones you have to worry about.
An early employee, Phillip Knowlton, was issued common stock in the beginning of the life of Craigslist and over time the preferred stockholders, Newmark and CEO Jim Buckmaster, made, according to Gawker at least, moves to dilute his holding since he was no longer involved with the firm.
Knowlton sold his quarter stake to eBay for $16m in 2004 (what a steal) but eBay knowing the fragile rights of common stockholders vs preferred ones also paid the company an additional $16m to establish basic shareholder rights.
All fine and dandy. That is until 2008 when eBay’s plans for Kijiji grew more ambitious and Buckmaster and Newmark’s feelings were hurt. They embarked on a rights issue that came with the caveat that no stockholder could sell to any outside party. Newmark and Buckmaster could sell to their heirs, charities or a trust. eBay, not wanting to agree to the onerous clause, did not participate.
In the process, their stake was dilluted from roughly 28% to 24%. Because the stake fell below 25%, eBay could now be kicked off the board.
Fast forward to today a Delaware Chancery Court judge has rescinded the poison pill plan and re-established eBay’s minority shareholder rights. That’s saying something, since Delaware is chosen because it has the most corporation friendly courts.
The decision is quite damning for Buckmaster and Newmark, whose brilliant creation and careers now have a slight blemish.