GEORGETOWN, Del./SAN FRANCISCO (Reuters) - Craigslist founder Craig Newmark testified on Thursday he decided to trust eBay Inc after a key 2004 meeting in which then-CEO Meg Whitman and other executives said the Internet giant shared the small private company’s core values.
But he compared his feelings to that of a cheated spouse when he later learned that eBay had launched a rival online classifieds site, Kijiji.
Newmark said that during stalled negotiations between the two parties, he was called to a July 21, 2004 meeting with eBay’s Whitman and other executives.
“She insisted that she was very happy at that point in time moving forward with a 28 percent share of Craigslist,” said Newmark. “She insisted convincingly that she shared our values and what she said was real. She’d follow through on that.”
“We decided eBay could be trusted and we proceeded with the deal,” he testified.
Newmark took the stand in Delaware’s Court of Chancery to defend the online classified ads company against accusations that it later unfairly diluted eBay’s stake in Craigslist to 24.85 percent and stripped it of a board seat.
Craigslist has meanwhile sued eBay in San Francisco, claiming the larger rival never disclosed its intentions in creating its own classified site and used its board seat to glean information for developing Kijiji.
EBay is fighting to reinstate its full stake and board seat. However, since the lawsuits were filed, eBay has vowed publicly to overtake Craigslist’s dominance in online classifieds in the United States.
EBay told Reuters last year that its U.S. classifieds business could take the top spot from Craigslist within five years through growth in its Kijiji business and acquisitions.
Newmark said Whitman told him that Craigslist was “the play in classifieds” and said the companies would “part amicably” if the partnership did not work.
Testimony from the trial, which began on Monday, has revealed a clash of cultures between Craigslist, known for its anti-corporate culture, and eBay, whose executives took the stand and mocked Craigslist executives for their “amateurish board meetings” and inability to use Power Point.
Newmark, who described himself as “not that comfortable with luxury” said that eBay founder Pierre Omidyar once joined him for a board meeting at a fancy San Francisco restaurant that Newmark described as “way too fancy for my taste.”
“Pierre showed up with guys with things in their ears and I thought, ‘This isn’t my lifestyle.’” he said. “I remember Garrett talking about making enormous amounts of money.”
Newmark referred to Garrett Price, eBay’s liaison with Craigslist, who took the stand Wednesday and Thursday.
EBay executives, including Price, have characterized Newmark as overly protective and resistant to eBay’s input.
Newmark denied he had ever referred to eBay as a “white knight” in buying the shares of a disgruntled former Craigslist shareholder, as was presented in an internal eBay email.
“I know a little about medieval history and even the good knights weren’t all that good,” said Newmark.
Newmark said he was disappointed to learn that eBay had launched a U.S. classifieds site and denied that he had ever been informed of plans to do so.
“EBay, specifically Meg Whitman, made commitments and broke them,” he said. “Basically this is the equivalent of a ‘Dear John’ letter. You thought you were dating and they show up with someone else.”
Under cross examination, attorneys for eBay sought to shed doubt on Newmark’s integrity, questioning him repeatedly about an $8 million payment he took as part of eBay’s investment but did not disclose to the Craigslist community.
Earlier Thursday, Price — who was eBay’s principal deal maker in acquiring its $32 million stake in Craigslist — said the decision to buy a stake in Craigslist was partly to block a sale to Google Inc.
Whitman, who testified on Monday, said her management team identified classifieds as an important area to expand and originally considered Craigslist as eBay’s “play in classifieds.”
But the relationship quickly soured and emails presented in court showed eBay executives considered the relationship as “dead” within a year of becoming a shareholder.
Emails also showed eBay executives expected they would violate provisions of their shareholder agreement with Craigslist when eBay launched Kijiji in United States, and anticipated losing their Craigslist board seat as a result.
Price testified that eBay was partly to blame for losing its board seat: “Both parties have some responsibility.”
The trial is being broadcast over Courtroom View Network.
The case is eBay Domestic Holdings Inc v Newmark, et al, Delaware Chancery Court, No. 3705-CC.
Editing by Dave Zimmerman, Phil Berlowitz