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Court battle begins over proposed breakup of IAC

Reuters

Chief Executive Barry Diller ran IAC/InterActiveCorp as if he owned it and proposed a spinoff of key businesses to gain leverage in a potential asset swap, Liberty Media Corp. Chairman John Malone told a Delaware court Monday.

Malone was the first witness to take the stand in the trial in Delaware Chancery court, where Internet conglomerate IAC and Liberty, its controlling shareholder, are battling over a proposed spinoff of four of New York-based IAC’s largest business units, including its HSN home shopping network and Ticketmaster ticketing service.

Malone’s remarks showed how his business relationship with Diller had unraveled after nearly 14 years of working together because of IAC’s volatile share performance and a brewing conflict between Diller and Liberty CEO Greg Maffei.

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The legal dispute between Diller and Malone erupted in January after Diller proposed changing the share structure of the spinoffs in a way that would dilute by half Liberty’s voting control over the units.

After Malone opposed the move and asked that it be brought to a shareholder vote, Diller, who controls the voting rights of Liberty’s IAC shares through a proxy agreement, made it clear that he would use his proxy to vote against Liberty’s wishes.

“Mr. Diller said, ‘We’ll have a shareholder vote and I will vote for it,’ as if to end the discussion,” Malone said during nearly five hours of testimony.

“My opinion is it’s a breach of the stewardship that we granted him when we started this whole relationship,” Malone said. “I think he believed that basically it was his company.”

Malone said he believed that Diller’s primary motivation was to gain leverage in discussions about a swap of assets between the two sides.

Englewood, Colo.-based Liberty owns about 30% of IAC, but holds 62% voting control in the company through a class of super-voting shares. Diller proposed a plan to structure the spinoffs with a single tier of shares nearly two months after Malone gave the spinoffs his initial blessing in November.

Malone had expected IAC to extend Liberty’s voting control over the divested companies, based on a model that Diller himself had advocated when IAC spun off online travel company Expedia Inc. in 2005.

The two sides have brought their case to court despite investor hopes that they would reach a settlement, possibly involving a swap of one or more of the IAC units in return for Liberty’s stake in IAC.

If Liberty prevails, Diller may well be out of the company he built with Malone’s backing.

IAC shares slid 52 cents, or 2.7%, to $19.01. They have lost more than 20% of their value since the dispute was filed in court. Liberty Media’s Liberty Interactive shares fell 38 cents, or 2.5%, to $14.63.


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