For the lazy, Craigslist says that they can dilute ebay's share because ebay launched Kijijijijijiji, which is a direct competitor for craigslist.
Sorta. Though Kijiji seems the motivating factor, the actual legal maneuverings are a lot more subtle, even tricky.
In fact, there's a curious provision apparently adopted in 2004 when EBay first got their stake. It said that the other shareholders had a right-of-first-refusal (ROFR) to acquire EBay's shares, but that if EBay started competing, that ROFR in EBay's share would expire. That's odd because the ROFR is not for EBay's benefit, but the company/others... so letting EBay unilaterally increase their freedom to sell their shares by competing with Craigslist seems backwards. (Instead, I would have thought the competing party would lose their ROFR to the others' shares.)
But I guess someone was thinking a few moves ahead, because it looks like Craig+Jim used the expiration of the first ROFR (in 2007 because of Kijiji) as rationalization for the creation of a new mutual ROFR. For agreeing to this new ROFR, the agreeing shareholders (Craig+Jim) would get bonus shares.... such bonus shares being just enough to dilute Ebay below a 25% ownership share, unless they also agree to the same new ROFR. 25% turns out to be a crucial threshold for electing a board member or preventing other operational changes.
Did Craig+Jim agree to the 2004 ROFR-expiration clause, knowing it would provide a rationale for a later new-ROFR-justified dilution? Or was the 2004 agreement just broken, and now they're trying to recover from something which gave Ebay too much freedom to both compete and sell their shares to anyone? I hope Craigslist's filing(s) clarify things.
Sorta. Though Kijiji seems the motivating factor, the actual legal maneuverings are a lot more subtle, even tricky.
In fact, there's a curious provision apparently adopted in 2004 when EBay first got their stake. It said that the other shareholders had a right-of-first-refusal (ROFR) to acquire EBay's shares, but that if EBay started competing, that ROFR in EBay's share would expire. That's odd because the ROFR is not for EBay's benefit, but the company/others... so letting EBay unilaterally increase their freedom to sell their shares by competing with Craigslist seems backwards. (Instead, I would have thought the competing party would lose their ROFR to the others' shares.)
But I guess someone was thinking a few moves ahead, because it looks like Craig+Jim used the expiration of the first ROFR (in 2007 because of Kijiji) as rationalization for the creation of a new mutual ROFR. For agreeing to this new ROFR, the agreeing shareholders (Craig+Jim) would get bonus shares.... such bonus shares being just enough to dilute Ebay below a 25% ownership share, unless they also agree to the same new ROFR. 25% turns out to be a crucial threshold for electing a board member or preventing other operational changes.
Did Craig+Jim agree to the 2004 ROFR-expiration clause, knowing it would provide a rationale for a later new-ROFR-justified dilution? Or was the 2004 agreement just broken, and now they're trying to recover from something which gave Ebay too much freedom to both compete and sell their shares to anyone? I hope Craigslist's filing(s) clarify things.