Liberty Media as a Catalyst for IAC (IACI, L)

This week's excellent Barron's cover story on Barry Diller and IAC/InterActiveCorp (paid sub. req'd) included a good amount of stuff of interest to shareholders of Liberty Media (L/NSYE).

As you get into the article, Barron's gives two potential catalysts that could justify being bullish on IAC. The first is Ask.com, described in the piece as the "scrappy" second-tier search engine.

Then Barron's got around to Liberty Media:

Another potential catalyst is the 21% IAC stake held by John Malone's Liberty Media. Liberty owns super-voting stock, giving it a 53% voting interest in IAC. As part of that arrangement, Malone granted Diller an irrevocable proxy to vote Liberty's shares, while Malone got the right to nominate up to two non-Liberty executives to IAC's board. Diller says Liberty recently proposed a director candidate, whose identity will be disclosed soon.

As it happens, Liberty this month disclosed a plan to divide its assets into two bunches, each with its own tracking stock. One group of assets, dubbed Liberty Capital, will include Malone's cable TV programming assets, like the premium movie channels Starz and Encore, along with a 16% stake in Murdoch's News Corp and a grab-bag of other assets.

The other tracker, to be called Liberty Interactive, includes QVC, the IAC stake, and Provide Commerce, a recently acquired online vendor of flowers, produce and other goods. A spokesman for Liberty says the tracking stocks should be issued to current Liberty Media holders sometime in April. What will that mean for IAC? "For our investors, if anything, it's a potentially positive catalyst," Diller says.

Some investors think the division of Liberty into two tracking stocks could be a prelude to a bigger transaction. Last week, Liberty filed with regulators for permission to increase its stakes in both IAC and Expedia. The Deal, an M&A trade journal, recently speculated that Liberty might sell its stake in News Corp. along with its subscription cable movie channels and use the proceeds to buy the rest of IAC. It wouldn't be surprising to see the issuance of the tracker lead to changes in Liberty's capital structure that could directly affect IAC/InterActive. For one thing, the synergies of joining QVC and HSN seem obvious.

This is something to keep an eye on. And remember Liberty shareholders, patience is a virtue.