The Wall Street Journal-20080201-IAC Tells Court Liberty Dispute Impedes Its Business
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IAC Tells Court Liberty Dispute Impedes Its Business
Full Text (595 words)As a Delaware court prepares to hear arguments today in the legal battle over control of IAC/InterActiveCorp, IAC said in a filing that the dispute has jeopardized its ability to conduct business.
A Delaware Chancery judge will hear a motion from Liberty Media Corp., which owns a 62% voting stake in IAC and is vying against Mr. Diller for control of the e-commerce and media company. The motion seeks to prevent the IAC board from taking any actions outside the course of ordinary business while the court decides on a number of other measures, including whether Liberty can lawfully replace Mr. Diller and other board members.
The judge is unlikely to delve into the broader issues of the case, which center on Mr. Diller's proposal to spin out four companies from IAC with a new voting structure. But a decision could clarify who is in charge of IAC for the short term. Under a longstanding proxy agreement, Mr. Diller controls the vote for Liberty's stake -- an agreement Liberty is now trying to nullify. IAC sued Liberty in the Delaware court last week for the right to proceed with the breakup on its terms.
Yesterday, IAC tried to show that Liberty's legal moves were hurting it. Liberty's attempt to remake the board -- which IAC described as "a purported palace coup" -- rendered "problematic" its release of its earnings next week, IAC said. It said the move would remove two members of its audit committee, which it said threatens to put the company in violation of Nasdaq Stock Market and Securities and Exchange Commission requirements. An IAC spokeswoman later clarified that earnings will be released as planned.
The filing also stated that Liberty's actions had forced its compensation committee, which met yesterday to approve bonuses of executive officers of IAC and the company's 60 operating companies, to "operate under a cloud of uncertainty and confusion."
"It's a shame after 12 or 13 years it's come to this," Liberty Chairman John Malone said in an interview yesterday, acknowledging he has "stepped out of the fisticuffs," and adding: "I guess we have a hard time understanding why Barry decided to become hostile toward us. We'll protect our shareholders."
IAC's claims appear designed to persuade the court not to grant any short-term rulings in favor of Liberty, which filed a reply brief in support of its earlier motion yesterday. IAC said in its filing that "any judicial order in Liberty's favor, no matter how tentative, risks stigmatizing the IAC board and affecting the marketplace."
The broader issue, that the judge may not hear immediately, is whether Mr. Diller can use his proxy to vote in favor of a restructuring on terms that Liberty opposes. In November, IAC said it would spin out several major businesses, including the HSN shopping network and Ticketmaster.
While the restructuring was expected to open the way for Liberty to take control of at least one of the businesses, IAC is proposing to take out Liberty's majority vote in the new companies by implementing a single-class voting structure. That would slash Liberty's majority voting stake because it stems from supervoting shares.
John Coffee, director of the Center on Corporate Governance at Columbia Law School, says Liberty has "a steeply uphill battle" in trying to prove that Mr. Diller violated his agreement by expressing his intention to vote in favor of a spinout. "My view is that the defendants have a strong argument that the proxy hasn't been violated, because no vote has been taken," Prof. Coffee says.
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Dionne Searcey contributed to this article.
