eBay sues Craig Newmark as Craigslist tries to squeeze it out

Expect a rash of headlines accusing auction giant eBay of bullying saintly Craig Newmark. eBay has sued Newmark, his business partner Jim Buckmaster, and Craigslist. The charge? Craigslist has allegedly diluted eBay's 28.4 percent stake in the company, which the auction giant acquired from a former Craigslist employee. The part of the story Newmark and Buckmaster don't want anyone to hear: The pair made about $16 million in the process of letting eBay buy the stake in their company. The deal included a shareholder-rights agreement which ought to prevent Craigslist from diluting eBay's stake in the company, people familiar with the deal have told Valleywag. By squeezing out eBay, Newmark and Buckmaster appear to be having their cake and eating it too. Relations between the companies had already deteriorated: eBay had a seat on the Craigslist board, at one point occupied by founder Pierre Omidyar, until last year.

Why, precisely, is Craigslist trying to dilute eBay's stake? Silicon Alley Insider's Peter Kafka speculates that Craigslist is looking for an outside investor. Nonsense; as Kafka himself points out, Craigslist doesn't need the money. Far more likely: Newmark and Buckmaster are angling to issue more shares to themselves so they don't have to share as much of the company's profits with eBay.