September 10, 2010
Delaware Chancery Rescinds Poison Pill at Craigslist
Here is news from Steven Haas of Hunton & Williams LLP: Yesterday, Chancellor Chandler issued his post-trial opinion in eBay Domestic Holdings, Inc. v. Newmark, addressing a closely watched dispute at privately-held craigslist, Inc. The case posed several novel issues, including the adoption of a poison pill at a privately-held company by its founders.
The court rescinded the rights plan, which it said had been adopted to prevent eBay from purchasing additional shares in the company and to hamper eBay’s ability to sell its 28% ownership bloc to a third party. Among other things, the court found that “[u]ltimately, defendants failed to prove that craigslist possesses a palpable, distinctive, and advantageous culture that sufficiently promotes stockholder value to support the indefinite implementation of a poison pill.”
The court also rescinded a dilutive stock issuance to craigslist’s founders that was aimed at incentivizing eBay to give craigslist a right of first refusal over its shares. It held that the founders breached their duty of loyalty and that the issuance failed the entire fairness test. The court refused to rescind a staggered board structure that had been implemented by the founders, finding that it was protected by the business judgment rule.