Will Liberty Really Push Diller Out At IACI?

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Includes: IAC, QVCA
by: Eric Savitz

I’ve been meaning for days now to weigh in on this messy battle between John Malone and Barry Diller over the fate of IAC/Interactive (IACI). So let me play a little catch up here: this is a battle of the titans that is already a hoot, and promising to get better from here.

Last week, Malone’s Liberty Media (LINTA) and IACI sued each other, seeking to clarify the fate of Malone’s super-voting control of IAC/Interactive in light of the company’s plan to split itself up into five separate public companies. The IACI plan would keep the current voting structure in place just for the stub of IACI, but not for the four spinoffs. For the spinoffs, all holders would get the same class of shares. Malone objects to that plan.

There are two complications here - well, there are really a zillion complications here given the intertwined fate of the two wheeler-dealers at the heart of the story. But let’s focus on the two primary issues. One, through Liberty, Malone holds about a 33% economic interest in IACI, and a 63% voting interest. (This according to the latest 13-D amendment filed by Liberty.) He increased his stake as recently as earlier this month. But by long-standing agreement, Diller has the right to vote Malone’s shares. That deal goes back to the origins of IACI in 1995, when Diller bought control of a company called Silver King that operated a smaller group of television stations; the same corporate entity has evolved through dozens of transactions into the Internet and retailing conglomerate now known as IAC/Interactive.

In the latest twist to the story, Liberty has filed suit in an attempt to reclaim voting control of its shares - and to oust Diller as head of IACI. In a statement today, IAC/Interactive described Liberty’s actions as “preposterous,” and asserted that the company has “gone off the deep end, not only alleging that Mr. Diller has somehow materially breached his proxy by which he has voted Liberty’s IAC shares for over 12 years, but also purporting to unilaterally throw our the incumbent directors and installing its own slate.” IACI says that “Liberty theory that it now controls IAC is incomprehensible.”

The company goes on to say that Liberty’s actions are “a desperate sideshow designed to exert pressure on the board and management of IACI as they attempt to act responsibly in the best interest of their stockholders.” And the release concludes that “IAC and Mr. Diller are highly confident that they will prevail on the merits of the ongoing litigation, and regret the fact that IAC’s employees and stockholders have been exposed to such reckless and frivolous actions.”

In a research note today, Bernstein’s Jeffrey Lindsay concludes that the litigation will delay IACI’s restructuring plan from the third quarter to at least early 2008 and “likely indefinitely.” And that, he says, makes the sale of one or more pieces of the company - Ticketmaster, HSN, LendingTree, the Interval divisions - a more likely outcome.

Lindsay says all of this uncertainty is “broadly negative for the stock.”

But not today. IACI is up 64 cents, or 2.5%, at $25.81.

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