The Wall Street Journal-20080125-IAC- Liberty Wage Two-Way Legal Battle
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IAC, Liberty Wage Two-Way Legal Battle
Months of simmering tension between media mogul Barry Diller and his longtime backer, John Malone, boiled over into a two-way legal battle that could determine the future control of major parts of Mr. Diller's business empire, IAC/InterActiveCorp.
Mr. Malone's Liberty Media Corp., which owns a majority voting stake in IAC, yesterday filed suit in Delaware Chancery Court accusing Mr. Diller of trying to mount a "corporate coup" with a planned restructuring that would dilute Liberty's control over several of IAC's major assets, which include Ticketmaster and the HSN home- shopping network.
Liberty's suit seeks to block Mr. Diller from completing the spinoffs of several units on terms that would dilute Liberty's voting power. Liberty's suit follows IAC's filing of a suit against Liberty in the same court earlier this week, in which IAC sought the right to complete the breakup on its terms.
The suit signals a breakdown in relations between Messrs. Diller and Malone, who have worked together since the mid-1990s in a partnership that helped turn IAC into a business empire valued at $7 billion. Mr. Malone had backed Mr. Diller in IAC, by giving Mr. Diller the right to vote Liberty's majority voting stake in the company.
Tension has arisen between the two men in the past couple of years, as IAC's stock performance has faltered. Uneasiness about the business relationship surfaced publicly late last year in a page-one article in The Wall Street Journal. "It is a little uncomfortable for Barry," Mr. Malone said in an interview at the time. "Right now we are the shadow that walks around behind him."
Yesterday in its complaint, Liberty said its representatives on IAC's board had "become increasingly concerned about issues related to performance and executive compensation." It added, however, that its "renewed focus" on those issues "coincided with an equal and opposite priority shift for Diller, who has become increasingly concerned about succession issues and his legacy, which he believes would best be preserved in an independent company without any controlling stockholder after his departure."
Two months ago Mr. Diller unveiled the restructuring, in which he proposed spinning off many of IAC's businesses. IAC would be left with several Internet businesses, led by the Ask.com search engine.
It wasn't revealed at that time, but the companies each said in court papers that IAC planned to structure the spinoff so the newly formed companies have a single-tier voting structure. IAC, in contrast, has a dual-class voting structure. Liberty owns supervoting stock that gives it 61.7% of the shareholder vote in IAC, even though it only owns about 30% of the outstanding shares.
There had been speculation that the restructuring would allow the two men to resolve their disagreement, by letting Liberty take control of some of the companies to be spun out. When it was announced, Mr. Malone praised the restructuring and said he was confident the two would work out a deal that was good for both. But eliminating the dual-class voting structure would wipe out Liberty's ability to control the new companies.
At an IAC board meeting Jan. 8, Mr. Malone -- who is a member of IAC's board as well as being chairman of Liberty -- asserted that the spinoffs couldn't be structured with single-tier voting structures. He said the existing dual-class structure would have to be replicated in the new companies. Liberty also argues that Mr. Diller can't use his proxy on Liberty's IAC shares to implement the restructuring as he proposes, IAC noted in its complaint.
A few days after the Jan. 8 board meeting, Liberty took steps to enhance its power by spending $340 million to increase its overall stake in IAC to 30% from 25%.
IAC and Dow Jones & Co., publisher of The Wall Street Journal, are jointly building a personal-finance Web site. Dow Jones is owned by News Corp.
