To understand why, let’s do a quick review. Diller has proposed breaking IAC into five public companies. Malone holds a 30% economic interest in IAC, and 62% voting control; but Diller has the right to vote Malone’s shares under a long-standing agreement. Diller’s plan for IAC would eliminate the current two-tier voting structure for the four spin-off companies; keep in mind that Malone owns all of the super-voting stock. Malone claims Diller’s proposal violates the terms of the their agreement; he wants control of his stock back from Diller, and he wants the super-voting structure maintains in all five pieces.
Douglas Anmuth, the Internet analyst at Lehman Brothers, today advised investors to buy the stock ahead of the court ruling, which is expected by Friday. He sees four possible outcomes, and contends most of them are positive for IACI shares:
- Diller maintains control, and can proceed with spin, with dual-class structure: That would be a mixed verdict for Diller, who would keep control and complete his spin-off plan, but grant Malone’s request to keep the dual-class structure for all parts. Anmuth rates probability of this outcome at 60%.
- Diller maintains control, can proceed with spin, installs single-class structure on the four spinoffs: This would be total victory for Diller. Anmuth finds this unlikely without some compensation for Liberty. Probability: 15%.
- Liberty gets voting control of IAC: That would be the end of Diller’s tenure at IAC/Interactive. It would also be the most bullish decision for IAC shares, Anmuth says, since it would imply value in the stock would be unlocked by Malone. Probability: 15%.
- Diller maintains control, but does not or cannot continue with spin-out plan: This would be the one outcome that would likely hurt the stock. Probability: 10%.
Meanwhile, Anmuth has trimmed his 2008 EPS estimate; he now sees $1.59 a share, down fomr $1.60. He also cut his price target on the stock to $28 from $35, “to better reflect current market valuations.”
IACI today is down 56 cents, or 2.6%, at $21.14.