Diller’s IAC Sells Back to NBC Its Minority Stake

Studio mogul-turned-Internet entrepreneur Barry Diller severed his remaining ties to Hollywood on Wednesday, agreeing to sell back to NBC Universal for $3.4 billion his company’s minority stake in its movie studio, theme parks and TV cable channels.

Diller’s IAC/InterActiveCorp, owner of the Home Shopping Network and Expedia, was paid $1 billion in cash and got back 56.6 million shares of IAC valued at $1.4 billion that NBC Universal held, the companies said.

The deal firms up control of some of Hollywood’s prized entertainment assets by conglomerate General Electric Co.

Through its 80%-owned NBC Universal, GE controls the Universal Studios film and theme park operations, along with such cable channels as the USA Network. France’s Vivendi Universal, which sold control of the assets last year to GE for $14 billion, has the remaining 20%.

Diller’s investment had previously been a sore point with NBC executives, who early on feared Diller might use his veto powers to thwart plans for the “Law & Order” TV franchise, the theme parks and other businesses. Those concerns were allayed last year when Diller agreed to void restrictions his company held over the Universal properties.

For Diller, the sale marks another exit from the studio business in which he once reigned as one of its most powerful executives.

In the 1970s and 1980s, Diller held top posts at ABC and Paramount Pictures, and then he started the Fox network. In recent years, Diller became a major force in the Internet business until he was tapped to oversee Vivendi’s U.S. entertainment operations in 2002.

“I was directly involved [at Universal] for less than a year,” Diller said in an e-mailed response to a question. “So nostalgia would be a little odd to feel. As for the entertainment business itself, I’ve never thought I left it.”

The deal announced Wednesday allows Diller to strengthen New York-based IAC’s balance sheet, which some investors have complained is overly complicated, as well as gain additional cash. IAC is buying Web search engine Ask Jeeves Inc. and is spinning off its online travel businesses.

“The transaction fits perfectly into our plan,” Diller said, who is IAC’s chief executive.

Analysts welcomed the news.

“This was a good strategy,” said Michael Savner, an analyst at Banc of America Securities. “This simplifies the balance sheet and sets a clearer strategic path.”

In addition to the $1 billion in cash and the shares, IAC will receive $865 million from cashed Treasury bonds. NBC Universal also will give IAC $100 million worth of advertising. All told, IAC said, it would have an after-tax gain of $330 million.

“We like the deal,” said GE spokesman David Frail. “We think we’re getting good value for what we paid.”

Diller’s stake in Vivendi Universal Entertainment dates to a complex deal he struck in 2002 with Jean-Marie Messier, former Vivendi Universal CEO. Diller sold his USA Networks business to Vivendi for $11 billion. The deal created a joint venture, Vivendi Universal Entertainment, and gave IAC a 5.4% ownership interest.

The deal ends an often-tense relationship between Diller and Vivendi. Diller clashed repeatedly with Messier’s successor at Vivendi, Jean-Rene Fourtou.

Vivendi executives last year publicly accused Diller of seeking to hold up the sale of Universal to GE. The two sides also were involved in a legal spat over potential tax liabilities connected to the IAC stake in the partnership. The dispute was dropped with Wednesday’s deal.

For Vivendi, the deal removes a host of nettlesome financial complications, including a requirement that it pay GE up to $520 million should GE decide to sell Universal’s theme parks at a loss before 2008.

“This draws a final line under the relationship between Vivendi and Mr. Diller,” current Vivendi CEO Jean-Bernard Levy.

IAC shares jumped $1.17 to $25.81. GE shares fell 4 cents to $36.80.