Craigslist Founder Testifies That eBay Turned Its Back on Craigslist's Values

Craigslist founder Craig Newmark testified that he was assured by executives from eBay that they were happy with a "courtship" period in which eBay would hold a minority stake for several years, and that if both sides weren't happy, they would agree to an amicable parting of the ways.
But Newmark testified that soon after the deal was struck, eBay's tone changed and "all of a sudden we were getting pressure to sell more equity."
Newmark said the Craigslist board decided to take steps to protect itself from eBay after eBay launched a competing online classified site that Craigslist had never been informed about.
Craigslist changed its rules of corporate governance, Newmark said, because it feared that if eBay maintained a seat on the board, it would continue to have access to confidential Craigslist information -- including financial data, Internet traffic statistics and strategic planning information -- that "could be used in a bad way."
Newmark also said eBay executives had made empty promises that the partnership would be beneficial to Craigslist because eBay could provide help and guidance on dealing with complicated issues like preserving customer trust and protecting users from scams.
"They talked about how much they wanted to offer help and never delivered," Newmark said.
Newmark's testimony came on the fourth day of a nonjury trial in Delaware Chancery Court, which is being webcast live by the Courtroom View Network, to decide eBay's claims that its 28 percent stake in Craigslist was unfairly diluted to less than 25 percent in order to strip eBay of its seat on the Craigslist board and other special rights it enjoyed as a minority shareholder.
Chancellor William B. Chandler III heard first from four current or former eBay executives, including eBay founder Pierre Omidyar and former CEO Meg Whitman, who is now a candidate for governor in California.
Although eBay has not yet rested its case, its lawyers said Thursday that they were finished with "fact witnesses" and had agreed to allow Craigslist's lawyers to begin calling their fact witnesses.
Newmark is expected to continue on cross-examination today and Craigslist CEO Jim Buckmaster is expected to testify after that.
Under questioning by attorney Anne C. Foster of Richards Layton & Finger in Wilmington, Del., Newmark testified that his closely held company was wooed by Google and Warburg Pincus, the private equity firm, when the market became aware that Craigslist shares were being offered by Philip Knowlton, one of just three shareholders.
Google was unacceptable as a potential buyer, Newmark testified, because it wanted all of the stock or none.
But Newmark testified that eBay proved to be an attractive prospect because there was a strong expression from eBay early in the negotiations that it shared Craigslist's corporate values.
"Pierre's values were amazingly congruent with our own," Newmark said, explaining that his own guiding principles include the philosophies of "treating others as you expect to be treated, mean what you say and follow through, and live and let live."
Negotiations went forward, Newmark said, largely because of eBay's philosophical assurances.
A DECISION TO TRUST
"They were comfortable with our whole mission -- they liked it a lot," Newmark said, adding that he "decided to trust" Omidyar, Whitman and eBay.
But negotiations later hit a stalemate, Newmark said, when eBay began insisting on buying a greater equity share, a condition that Newmark said he considered to be a "deal breaker."
A face-to-face meeting with Whitman, he said, got the negotiations back on track because Whitman assured Craigslist that she was comfortable with a courtship period, and assured Newmark that if the marriage of the two companies did not seem to be working out, "we'd part amicably."
"We decided that eBay could be trusted and we proceeded with the deal," Newmark said.
But soon after the deal was signed, Newmark said, he learned that eBay had been planning to launch its own classified site in Europe -- a fact that, he said, directly conflicted with eBay's assurance that it considered its partnership with Craigslist to be "the play" in the classified market.
Newmark testified that he also believed that eBay was bound by a confidentiality agreement that would protect against improper uses of Craigslist information, but that he later learned that eBay had used Craigslist data and financial records in deciding whether to acquire other classified sites around the world and in building its own classified site that would compete directly with Craigslist in the United States.
At the same time, Newmark said, he was increasingly concerned by eBay's focus on finding ways to charge Craigslist users more money -- changing the mostly free nature of the Craigslist site.