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EBay, Craigslist Minority Shareholder, Sues Craigslist

Not something you see everyday: eBay, which owns 28.4% of Craigslist, is suing Craigslist, claiming that recent action taken by the mostly free online classifieds site's board have "unfairly diluted eBay's economic interest" in the company. The suit doesn't name the specific action taken by Craiglist, but eBay claims it diluted the online auctioneer's share by more than 10%. The suit was filed in the Delaware Court of Chancery on Tuesday. Naturally, both companies' in their public statements claimed the other was wrong, expressing something akin to "shock and dismay."

This is a strange lawsuit, to be sure, but given the history of "frosty relations" between the two companies, it may actually have been a long time in coming, The New York Times suggests. According to Craigslist founder Craig Newmark, eBay acquired its stake in the company when an early employee left in 2004, selling his shares to the Web giant without consulting Craigslist first. Since then, The Times says eBay has been frustrated with the site's apparent lack of desire to increase profits or redesign its simplistic user interface. EBay has even launched Craigslist competitors like Kijiji.com. The online auctioneer has also complained that it no longer has a seat on the Craigslist board.

The Silicon Alley Insider surmises that "unfairly tried to dilute eBay's stake" (which now refers to an event that has already happened) means that either Newmark and co. tried to take on an additional investor or they employed some other means of transferring equity to shareholders other than eBay, such as expanding its option pool.

Read the whole story at The New York Times »

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