Anti-Takeover Measures in Ebay v. Craigslist

Delaware corporate jurisprudence has long recognized the utility ' and upheld the validity ' of defensive measures implemented in response to, or in anticipation of, hostile takeover threats. The overwhelming majority of the decisions in jurisprudence generally arise in the context of contests for control of publicly traded companies. Not surprisingly, attacks from the perceived raider typically assail the self-interest and self-dealing of the board of directors and management of the target, alleging that the defensive measures adopted are more intended to entrench and enrich management than they are reasonably crafted to accomplish the defensive strategy proffered as justification.

The courts have sought to create a level playing field for such disputes, emphasizing that “a corporation does not have unbridled discretion to defeat any perceived threat.” Unocal Corp. v. Mesa Petroleum Co., 493 A. 2d 946, 955 (Del. 1985). Defensive measures must be reasonable in relation to the threat posed and cannot have as their sole or primary purpose the entrenchment of management. Id. However, what happens when the majority shareholders interest is so large as to make entrenchment and self-interest an academic issue? How far can the majority shareholders of a closely held company go to repel, and further insulate their company from, the perceived threat of a predatory minority stakeholder? By what standard will the majority shareholder's conduct be measured? Will the business judgment rule apply, or will entire fairness be required in defense of the measures implemented by the majority?

These are only some of the issues tried in the early weeks of December before the Honorable William B. Chandler, III, Chancellor of Delaware's Court of Chancery, in eBay Domestic Holdings, Inc. v. Craigslist, Inc., et al., C.A. No. 3705-CC.

The Facts in Overview

In late 2004, eBay moved to acquire a sizable stake in Craigslist when 28% of its shares became available before any of its competitors could seize the opportunity. Even that percentage stake would leave eBay a minority shareholder subject to the controlling votes of the twin powers in the company, Craig Newmark and James Buckmaster, who together held the remaining stock in the company and also sat as directors (the Craigslist board was comprised of three seats). Given that eBay's stock position would leave it no path to control Craigslist, eBay sought additional stock in the company. Newmark and Buckmaster insisted on retaining control of Craigslist to protect the unique business model they saw as the heart of the company's success. In order to ensure that protection, Craigslist required that eBay execute a nondisclosure agreement and a shareholders' agreement (SHA), the provisions of which accomplished two things: 1) they limited eBay's use of confidential, proprietary information about Craigslist “now or in the future,” only for the purpose of evaluating eBay's investment in Craigslist; and 2) they provided eBay with specific shareholder rights for which it had negotiated, but also noted that eBay would forfeit certain of the rights if it engaged in prohibited “competitive activity” against Craigslist as defined in the SHA. The rights included in the forfeiture provision include a right of first refusal on company share issuances, the right to block increases or decreases in number of authorized shares of common stock, and the right to approve, amend or terminate an agreement or plan relating to issuance of securities to officers, directors and employees.

Importantly, under the SHA, in the event a notice of “competitive activity” was delivered to eBay, eBay's minority interest could immediately be sold without the approval of Craigslist, its board or Newmark and Buckmaster.

According to Craigslist, in the years immediately following eBay's purchase of a minority position in the company, eBay undertook a series of predatory, competitive actions to co-opt Craigslist's business model to its own ends, including pirating data from Craigslist's confidential Web site for the use of various competing ventures that eBay had launched. Craigslist alleges that eBay not only violated the nondisclosure agreement, but also that eBay intended from the outset to take control of and eventually own Craigslist. Tensions between the two companies reached a crisis point in June 2007, when eBay launched its own “classifieds” site, according to Craigslist, “in direct competition against Craigslist.” In the same time period, eBay's director designee resigned from the Craigslist board of directors. Shortly thereafter, Craigslist sent eBay a “Notice of Competitive Activity” pursuant to the SHA.

Craigslist Moves to Protect Itself: The Rights Plan and Governance Measures

Following issuance of the notice of competition, Buckmaster and Newmark, as two of Craigslist's three directors and majority shareholders, moved to implement specific governance measures to protect the company from threats of the kind they perceived to be presented by eBay. These included a staggered board provision, a shareholders' rights plan and a company Right of First Refusal Agreement (ROFR), by which to control future sales of Craigslist shares. Craigslist's primary purpose in adopting the staggered director provision was to prevent eBay from unilaterally placing a conflicted director on the Craigslist board. The purpose of the rights plan was to protect against an unwanted takeover by eBay or any other investor whose view of Craigslist was not compatible with the Craigslist business ethic and model, including in the event of the death of Newmark or Buckmaster.

The ROFR provided for the issuance to any shareholder agreeing to sell its shares to the company of one additional share of common stock for every five shares held. Newmark and Buckmaster immediately agreed to participate in the ROFR, which reduced eBay's ownership to 24.85%. (Note, eBay has not accepted or rejected the ROFR to date.) The reduction of eBay's interest below the 25% threshold took from eBay its ability to elect a director under the election provisions predating the governance measures implementation and its ability to block any vote to eliminate cumulative voting.

In tandem, the rights plan and the ROFR protect Craigslist against takeover absent the approval of its board. In practical effect, they put eBay to the Hobson's choice of participating in the ROFR to protect its shareholder rights while surrendering control over their shares. In eBay's view, the ROFR was nothing more than a thinly disguised effort to deny eBay the ability to sell its stock to anyone not controlled by Newmark and Buckmaster.

The Craigslist's board ' Newmark and Buckmaster ' sought the advice of company counsel on the various governance measures and, on Jan. 1, 2008, adopted each. (Note, eBay asserts that it nominated a substitute director to sit on the board, as it believes it was entitled to do. However, Newmark and Buckmaster never recognized the nominee, according to eBay.)

In April 2008, eBay filed suit in the Court of Chancery asking the court to declare as void the governance measures adopted by Craigslist. The litigation is unique for one reason: Craigslist defends its actions nearly entirely with the fact that Newmark and Buckmaster own such an overwhelming majority of the company ' and have no intention of ever selling or diluting their majority ' that none of the defensive measures at issue can be motivated by self-interest. Therefore, as eBay presents a reasonable threat, under the circumstances, to Craigslist, the defensive measures taken must be upheld pursuant to the business judgment rule.

The Legal Issues

The critical issues here are: 1) whether Craigslist's governance measures are reasonably designed to address a threat to the company, or unreasonably disenfranchise eBay to the benefit of Newmark and Buckmaster; and 2) if the governance measures are not reasonably designed to address a perceived threat, is their invalidity trumped by the forfeiture provisions of the SHA (assuming eBay is found to have engaged in “competitive activity”)?

Business Judgment or Entire Fairness and Unocal

Weinberger v. UOP, and scores of cases since, have made clear that, where one stands on both sides of a transaction, that party must demonstrate the entire fairness of the challenged transaction to the court. Newmark and Buckmaster reject the application of the entire fairness standard here, arguing that: 1) as owners of the overwhelming majority of stock, they cannot be motivated by self interest or entrenchment (put another way, they are so entrenched as to be immovable); and, 2) the adoption of the governance measures was approved by the directors and a majority of the shareholders, which approval, they argue, avoids application of the entire fairness standard. They also emphasize the “corporate benefits” that the governance measures reap and the threat to Craigslist's business model now and in the future (including after their deaths) if the measures are not upheld. However, self-interest is not limited to entrenchment, nor does approval by a majority of the shareholders automatically insulate corporate action from the entire fairness review. As it appears that the actions taken by Craigslist generally ' if not directly ' inure to the personal benefit of Newmark and Buckmaster (eBay points, in part, to the exception from the rights plan of transfers to Newmark's and Buckmaster's heirs, as well as trusts established by them and charities, which frees Newmark and Buckmaster of its impact, but not eBay and the dilutive effect of the ROFR's on eBay's percentage ownership), who negotiated and approved the measures as directors and shareholders, it seems likely that Newmark and Buckmaster will be required to prove the entire fairness of their actions.

A Question of Balance

Delaware has long upheld the power and duty of a board to implement anti-takeover measures where a threat to the company is reasonably perceived, including when the threat comes from other shareholders. Unocal at 954-955. As the Delaware Supreme Court emphasized in Unocal, however, considerations beyond entrenchment must attend the implementation of such measures. These include the precept that inequitable action may not be taken under the guise of law and the formative requirement of balance ' that is, the defensive measures must be reasonable in relation to the threat posed. Even 25 years before Unocal, the Court of Chancery in Kors v. Carey, 158 A. 2d 136 (Del. Ch. 1060), made the point more simply, concluding that directors may eliminate what appears to them to be a threat to the future of their company by any lawful means, including through the purchase of shares at private sale where the purchase is to eliminate a substantial number of shares held by a “stockholder at odds with management policy.” The court nevertheless noted that “the transaction [must be] clear of any fraud or unfairness.”

Much can be made of the unusual context here, and that eBay and Craigslist had negotiations and the SHA attempted to define the rights and duties that would define their relationship, including forfeiture triggers, apparently sensitive to the guidance of the Delaware Supreme Court in Nixon v. Blackwell, 626 A. 2d. 1366 (Del. 1993). There, the court paused on the “basic dilemma” of a stockholder who bargains for stock in a closely held company, where there is no market for the stock and no market valuation. The court encouraged the opportunity to “bargain for protection before parting with consideration” (emphasis added), concluding that “[i]t would do violence to normal corporate practice and our corporation law to fashion an ad hoc ruling which would result in a court-imposed stockholder buy-out for which the parties had not contracted.”

However the Nixon court did not end its inquiry there. It also considered the defense's argument that they demonstrated their fairness by the device of “self tender” offers and whether or not the “self tenders” provided an “exit opportunity for the plaintiffs”; that is, one that “would have provided fair value to the minority shareholders.” 626 A. 2d at 1378, and n. 13. As in Nixon, the court here will be required to consider whether, as eBay contends, the governance measures and the rights plan effectively disenfranchise eBay and deny it a “fair value” exit opportunity in the marketplace or otherwise within the ROFR.

Under the SHA, upon receipt of a notice of competitive activity, eBay had the right to sell its interest without the approval ' and over the objection of ' the company, the board and Newmark and Buckmaster. That would seem to be the negotiated “exit opportunity” espoused in Nixon. However, eBay insists that the rights plan (in conjunction with the other measures adopted by Craigslist) had the effect of undercutting the value, if not the marketability, of its interest in the company. Restated, the rights plan took away the exit strategy negotiated in the SHA. Notwithstanding Craigslist's arguments to the contrary, this seems a reasonable conclusion.

Craigslist counters that certain of the governance measures (specifically the rights plan) are designed to address future takeover efforts, do not effect eBay now and therefore cannot be the basis of challenge. However, Craigslist has made eBay the corporate illustration of Shroedinger's Cat. eBay is in a box wholly the construct of the governance measures, where all the rights it will ever have, now and in the future, are contained. Accepting such as the predicate, are the defensive measures implemented by Craigslist reasonable in relation to the threat posed? This point is cast in bas relief by the fact repeatedly emphasized by Newmark and Buckmaster: They are the majority shareholders and have no intention of diluting that position now or in the future. Therefore, can eBay really constitute a threat to management? Whatever eBay's declared goals may be, can it ever takeover Craigslist absent the cooperation of its principals? Alternatively, if the perceived threat is one of unfair competition, does not the SHA adequately address it?

A Pause for Unclean Hands and the SHA

Craigslist backstops its defense with the equitable doctrine of unclean hands, asserting that eBay's competitive activity bars relief, as a matter of equity and through the operation of the forfeiture provisions of the SHA. The court may conclude that, as a matter of equity, eBay's conduct rises to such a level as to foreclose any relief in its favor. Such a ruling would be unusual for its breadth and severity. Also, the SHA provision allowing eBay's shares to be sold in the event of a notice of competitive activity seems to contemplate some relief to eBay notwithstanding unfair competition. Only time will tell if such is to be the case. That aside, the forfeiture provisions do not permit a “no holds barred” approach to corporate governance. eBay is still entitled to fairness, even in the context of take out provisions used in defense of a perceived threat. If the cumulative effect of the defensive measures encroaches on that fairness, they will not be sustained. The court will reshape the box in which craigslist has put eBay, or perhaps, simply open it, as fairness includes a fair exit opportunity.

Conclusion

In eBay v. Craigslist, a number of important elements of corporate governance ' and the standards by which they are judged ' converge. Yet, given the unusual ownership breakdown, it would seem that the normal rules don't apply. Craigslist has adopted a panoply of defensive measures arguably to the detriment of a minority shareholder, in response to perceived competition from the minority, notwithstanding the already existing weapons available to it in the SHA. While individually, each measure may withstand scrutiny in the context of a public company's response to a hostile takeover, here their net effect is aimed directly at the minority holder in a closely held company. What few options are left to the minority force it to a lesser of evils choice at every turn. Moreover, the minority's opportunity to sell its shares on the market, as negotiated into the SHA, is subject to a rights plan that as a practical matter takes away a fair market exit. However, Delaware's corporate jurisprudence is not static. As the Unocal court wrote, it has shown that it will evolve in response to and in anticipation of evolving concepts and needs, just as the variety of anti-takeover devices has evolved. This may be such an instance.

Michael F. Bonkowski is a partner in the Wilmington, DE, office of Cole, Schotz, Meisel, Forman & Leonard, P.A. He can be reached at [email protected] or 302-651-2002.

Delaware corporate jurisprudence has long recognized the utility ' and upheld the validity ' of defensive measures implemented in response to, or in anticipation of, hostile takeover threats. The overwhelming majority of the decisions in jurisprudence generally arise in the context of contests for control of publicly traded companies. Not surprisingly, attacks from the perceived raider typically assail the self-interest and self-dealing of the board of directors and management of the target, alleging that the defensive measures adopted are more intended to entrench and enrich management than they are reasonably crafted to accomplish the defensive strategy proffered as justification.

The courts have sought to create a level playing field for such disputes, emphasizing that “a corporation does not have unbridled discretion to defeat any perceived threat.” Unocal Corp. v. Mesa Petroleum Co. , 493 A. 2d 946, 955 (Del. 1985). Defensive measures must be reasonable in relation to the threat posed and cannot have as their sole or primary purpose the entrenchment of management. Id. However, what happens when the majority shareholders interest is so large as to make entrenchment and self-interest an academic issue? How far can the majority shareholders of a closely held company go to repel, and further insulate their company from, the perceived threat of a predatory minority stakeholder? By what standard will the majority shareholder's conduct be measured? Will the business judgment rule apply, or will entire fairness be required in defense of the measures implemented by the majority?

These are only some of the issues tried in the early weeks of December before the Honorable William B. Chandler, III, Chancellor of Delaware's Court of Chancery, in eBay Domestic Holdings, Inc. v. Craigslist, Inc., et al., C.A. No. 3705-CC.

The Facts in Overview

In late 2004, eBay moved to acquire a sizable stake in Craigslist when 28% of its shares became available before any of its competitors could seize the opportunity. Even that percentage stake would leave eBay a minority shareholder subject to the controlling votes of the twin powers in the company, Craig Newmark and James Buckmaster, who together held the remaining stock in the company and also sat as directors (the Craigslist board was comprised of three seats). Given that eBay's stock position would leave it no path to control Craigslist, eBay sought additional stock in the company. Newmark and Buckmaster insisted on retaining control of Craigslist to protect the unique business model they saw as the heart of the company's success. In order to ensure that protection, Craigslist required that eBay execute a nondisclosure agreement and a shareholders' agreement (SHA), the provisions of which accomplished two things: 1) they limited eBay's use of confidential, proprietary information about Craigslist “now or in the future,” only for the purpose of evaluating eBay's investment in Craigslist; and 2) they provided eBay with specific shareholder rights for which it had negotiated, but also noted that eBay would forfeit certain of the rights if it engaged in prohibited “competitive activity” against Craigslist as defined in the SHA. The rights included in the forfeiture provision include a right of first refusal on company share issuances, the right to block increases or decreases in number of authorized shares of common stock, and the right to approve, amend or terminate an agreement or plan relating to issuance of securities to officers, directors and employees.

Importantly, under the SHA, in the event a notice of “competitive activity” was delivered to eBay, eBay's minority interest could immediately be sold without the approval of Craigslist, its board or Newmark and Buckmaster.

According to Craigslist, in the years immediately following eBay's purchase of a minority position in the company, eBay undertook a series of predatory, competitive actions to co-opt Craigslist's business model to its own ends, including pirating data from Craigslist's confidential Web site for the use of various competing ventures that eBay had launched. Craigslist alleges that eBay not only violated the nondisclosure agreement, but also that eBay intended from the outset to take control of and eventually own Craigslist. Tensions between the two companies reached a crisis point in June 2007, when eBay launched its own “classifieds” site, according to Craigslist, “in direct competition against Craigslist.” In the same time period, eBay's director designee resigned from the Craigslist board of directors. Shortly thereafter, Craigslist sent eBay a “Notice of Competitive Activity” pursuant to the SHA.

Craigslist Moves to Protect Itself: The Rights Plan and Governance Measures

Following issuance of the notice of competition, Buckmaster and Newmark, as two of Craigslist's three directors and majority shareholders, moved to implement specific governance measures to protect the company from threats of the kind they perceived to be presented by eBay. These included a staggered board provision, a shareholders' rights plan and a company Right of First Refusal Agreement (ROFR), by which to control future sales of Craigslist shares. Craigslist's primary purpose in adopting the staggered director provision was to prevent eBay from unilaterally placing a conflicted director on the Craigslist board. The purpose of the rights plan was to protect against an unwanted takeover by eBay or any other investor whose view of Craigslist was not compatible with the Craigslist business ethic and model, including in the event of the death of Newmark or Buckmaster.

The ROFR provided for the issuance to any shareholder agreeing to sell its shares to the company of one additional share of common stock for every five shares held. Newmark and Buckmaster immediately agreed to participate in the ROFR, which reduced eBay's ownership to 24.85%. (Note, eBay has not accepted or rejected the ROFR to date.) The reduction of eBay's interest below the 25% threshold took from eBay its ability to elect a director under the election provisions predating the governance measures implementation and its ability to block any vote to eliminate cumulative voting.

In tandem, the rights plan and the ROFR protect Craigslist against takeover absent the approval of its board. In practical effect, they put eBay to the Hobson's choice of participating in the ROFR to protect its shareholder rights while surrendering control over their shares. In eBay's view, the ROFR was nothing more than a thinly disguised effort to deny eBay the ability to sell its stock to anyone not controlled by Newmark and Buckmaster.

The Craigslist's board ' Newmark and Buckmaster ' sought the advice of company counsel on the various governance measures and, on Jan. 1, 2008, adopted each. (Note, eBay asserts that it nominated a substitute director to sit on the board, as it believes it was entitled to do. However, Newmark and Buckmaster never recognized the nominee, according to eBay.)

In April 2008, eBay filed suit in the Court of Chancery asking the court to declare as void the governance measures adopted by Craigslist. The litigation is unique for one reason: Craigslist defends its actions nearly entirely with the fact that Newmark and Buckmaster own such an overwhelming majority of the company ' and have no intention of ever selling or diluting their majority ' that none of the defensive measures at issue can be motivated by self-interest. Therefore, as eBay presents a reasonable threat, under the circumstances, to Craigslist, the defensive measures taken must be upheld pursuant to the business judgment rule.

The Legal Issues

The critical issues here are: 1) whether Craigslist's governance measures are reasonably designed to address a threat to the company, or unreasonably disenfranchise eBay to the benefit of Newmark and Buckmaster; and 2) if the governance measures are not reasonably designed to address a perceived threat, is their invalidity trumped by the forfeiture provisions of the SHA (assuming eBay is found to have engaged in “competitive activity”)?

Business Judgment or Entire Fairness and Unocal

Weinberger v. UOP, and scores of cases since, have made clear that, where one stands on both sides of a transaction, that party must demonstrate the entire fairness of the challenged transaction to the court. Newmark and Buckmaster reject the application of the entire fairness standard here, arguing that: 1) as owners of the overwhelming majority of stock, they cannot be motivated by self interest or entrenchment (put another way, they are so entrenched as to be immovable); and, 2) the adoption of the governance measures was approved by the directors and a majority of the shareholders, which approval, they argue, avoids application of the entire fairness standard. They also emphasize the “corporate benefits” that the governance measures reap and the threat to Craigslist's business model now and in the future (including after their deaths) if the measures are not upheld. However, self-interest is not limited to entrenchment, nor does approval by a majority of the shareholders automatically insulate corporate action from the entire fairness review. As it appears that the actions taken by Craigslist generally ' if not directly ' inure to the personal benefit of Newmark and Buckmaster (eBay points, in part, to the exception from the rights plan of transfers to Newmark's and Buckmaster's heirs, as well as trusts established by them and charities, which frees Newmark and Buckmaster of its impact, but not eBay and the dilutive effect of the ROFR's on eBay's percentage ownership), who negotiated and approved the measures as directors and shareholders, it seems likely that Newmark and Buckmaster will be required to prove the entire fairness of their actions.

A Question of Balance

Delaware has long upheld the power and duty of a board to implement anti-takeover measures where a threat to the company is reasonably perceived, including when the threat comes from other shareholders. Unocal at 954-955. As the Delaware Supreme Court emphasized in Unocal, however, considerations beyond entrenchment must attend the implementation of such measures. These include the precept that inequitable action may not be taken under the guise of law and the formative requirement of balance ' that is, the defensive measures must be reasonable in relation to the threat posed. Even 25 years before Unocal , the Court of Chancery in Kors v. Carey , 158 A. 2d 136 (Del. Ch. 1060), made the point more simply, concluding that directors may eliminate what appears to them to be a threat to the future of their company by any lawful means, including through the purchase of shares at private sale where the purchase is to eliminate a substantial number of shares held by a “stockholder at odds with management policy.” The court nevertheless noted that “the transaction [must be] clear of any fraud or unfairness.”

Much can be made of the unusual context here, and that eBay and Craigslist had negotiations and the SHA attempted to define the rights and duties that would define their relationship, including forfeiture triggers, apparently sensitive to the guidance of the Delaware Supreme Court in Nixon v. Blackwell , 626 A. 2d. 1366 (Del. 1993). There, the court paused on the “basic dilemma” of a stockholder who bargains for stock in a closely held company, where there is no market for the stock and no market valuation. The court encouraged the opportunity to “bargain for protection before parting with consideration” (emphasis added), concluding that “[i]t would do violence to normal corporate practice and our corporation law to fashion an ad hoc ruling which would result in a court-imposed stockholder buy-out for which the parties had not contracted.”

However the Nixon court did not end its inquiry there. It also considered the defense's argument that they demonstrated their fairness by the device of “self tender” offers and whether or not the “self tenders” provided an “exit opportunity for the plaintiffs”; that is, one that “would have provided fair value to the minority shareholders.” 626 A. 2d at 1378, and n. 13. As in Nixon, the court here will be required to consider whether, as eBay contends, the governance measures and the rights plan effectively disenfranchise eBay and deny it a “fair value” exit opportunity in the marketplace or otherwise within the ROFR.

Under the SHA, upon receipt of a notice of competitive activity, eBay had the right to sell its interest without the approval ' and over the objection of ' the company, the board and Newmark and Buckmaster. That would seem to be the negotiated “exit opportunity” espoused in Nixon. However, eBay insists that the rights plan (in conjunction with the other measures adopted by Craigslist) had the effect of undercutting the value, if not the marketability, of its interest in the company. Restated, the rights plan took away the exit strategy negotiated in the SHA. Notwithstanding Craigslist's arguments to the contrary, this seems a reasonable conclusion.

Craigslist counters that certain of the governance measures (specifically the rights plan) are designed to address future takeover efforts, do not effect eBay now and therefore cannot be the basis of challenge. However, Craigslist has made eBay the corporate illustration of Shroedinger's Cat. eBay is in a box wholly the construct of the governance measures, where all the rights it will ever have, now and in the future, are contained. Accepting such as the predicate, are the defensive measures implemented by Craigslist reasonable in relation to the threat posed? This point is cast in bas relief by the fact repeatedly emphasized by Newmark and Buckmaster: They are the majority shareholders and have no intention of diluting that position now or in the future. Therefore, can eBay really constitute a threat to management? Whatever eBay's declared goals may be, can it ever takeover Craigslist absent the cooperation of its principals? Alternatively, if the perceived threat is one of unfair competition, does not the SHA adequately address it?

A Pause for Unclean Hands and the SHA

Craigslist backstops its defense with the equitable doctrine of unclean hands, asserting that eBay's competitive activity bars relief, as a matter of equity and through the operation of the forfeiture provisions of the SHA. The court may conclude that, as a matter of equity, eBay's conduct rises to such a level as to foreclose any relief in its favor. Such a ruling would be unusual for its breadth and severity. Also, the SHA provision allowing eBay's shares to be sold in the event of a notice of competitive activity seems to contemplate some relief to eBay notwithstanding unfair competition. Only time will tell if such is to be the case. That aside, the forfeiture provisions do not permit a “no holds barred” approach to corporate governance. eBay is still entitled to fairness, even in the context of take out provisions used in defense of a perceived threat. If the cumulative effect of the defensive measures encroaches on that fairness, they will not be sustained. The court will reshape the box in which craigslist has put eBay, or perhaps, simply open it, as fairness includes a fair exit opportunity.

Conclusion

In eBay v. Craigslist, a number of important elements of corporate governance ' and the standards by which they are judged ' converge. Yet, given the unusual ownership breakdown, it would seem that the normal rules don't apply. Craigslist has adopted a panoply of defensive measures arguably to the detriment of a minority shareholder, in response to perceived competition from the minority, notwithstanding the already existing weapons available to it in the SHA. While individually, each measure may withstand scrutiny in the context of a public company's response to a hostile takeover, here their net effect is aimed directly at the minority holder in a closely held company. What few options are left to the minority force it to a lesser of evils choice at every turn. Moreover, the minority's opportunity to sell its shares on the market, as negotiated into the SHA, is subject to a rights plan that as a practical matter takes away a fair market exit. However, Delaware's corporate jurisprudence is not static. As the Unocal court wrote, it has shown that it will evolve in response to and in anticipation of evolving concepts and needs, just as the variety of anti-takeover devices has evolved. This may be such an instance.

Michael F. Bonkowski is a partner in the Wilmington, DE, office of Cole, Schotz, Meisel, Forman & Leonard, P.A. He can be reached at [email protected] or 302-651-2002.