
EBay Files Suit Against Craigslist - raghus
http://www.nytimes.com/2008/04/22/technology/22cnd-ebay.html?ex=1366603200&en=61488ae8a64a3aeb&ei=5088&partner=rssnyt&emc=rss
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Harkins
Hey, reminds me of Cryptonomicon. Let's see...

The math is pretty simple here. The Dentist [eBay] has a way to claim damages
from Epiphyte [Craigslist]. The amount of those damages is x, where x is what
the Dentist, as a minority shareholder, would have made in capital gains if
Randy had been responsible enough to write a better contract with Semper
Marine [if Newmark and Buckmaster hadn't unfairly diluted their ownership]. If
such a contract had specified a fifty-fifty split, then x would be equal to
fifty percent of the cash value of the wreck times the one tenth of Epiphyte
that the Dentist owns minus a few percent for taxes and other frictional
effects of the real world [Ebay says: Can you believe all the revenue
opportunities that Craiglist has passed on!?]. So if there's ten million
dollars in the wreck, then x works out to around half a million bucks.

In order for the Dentist to gain control of Epiphyte, he has to acquire an
additional forty [23] percent of its stock. The price of that stock (if it
were for sale) is simply 0.4 [0.23] times the total value of Epiphyte. Call it
y.

If x > y, the Dentist wins. Because then the judge is going to say, "You,
Epiphyte, owe this poor aggrieved minority shareholder $x. But as I look at
the parlous state of the corporation's finances I see that there's no way for
you to raise that kind of money. And so the only way to settle the debt is to
give the plaintiff the one asset you have in abundance, which is your crappy
stock. And since the value of the whole corporation is really, really close to
being zero, you're going to have to give him almost all of it."

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breily
There's some info here -
[http://www.alleyinsider.com/2008/4/craigslist_investor_ebay_...](http://www.alleyinsider.com/2008/4/craigslist_investor_ebay_sues_craigslist_seriously)
\- if you don't feel like logging into NYTimes.

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DaniFong
Didn't they buy that stock from an ex-employee, not craigslist directly?

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mlinsey
Does it matter? I would think that all the relevant rights and
responsibilities to shareholders would be the same no matter who the stock was
bought from, but I'm not an expert in the matter.

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DaniFong
It's not a public company, and if the contract or moral obligation to the
original shareholder was inalienable (probably), it shouldn't be treated like
it is.

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mlinsey
Interesting.

A somewhat tangential question...for a company like Craigslist that seems
content to collect profits as an independent private company rather than cash
out with a sale or an IPO, what happens to those that hold stock? I'm thinking
not just of investors like eBay but in particular their employees. Since lots
of starup employees decide where to work based on where they will be able to
cash out their options, how does a company like Craigslist keep its employees
on board?

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modoc
They probably pay them.

Or they have a longer term strategy that's known within the company, but
frankly I like the idea of just running it like a business and paying the
employees. I really agree with DHH's talk this past weekend (even though I
don't always agree with DHH in general). There is a lot to be said for just
running a business profitably.

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eb
This isn't really news without any details.

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dbreunig
It might not be another investor...it could be that Craig and co. didn't want
to earn revenue in a manner that eBay would have liked.

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kawika
Whatever the particulars or merits of the suit, I'm sure Craigslist fans will
stand by the company -- especially with company notices titled "Tainted Love."
Classic.

