Court rules against Liberty Media
Barry Diller openly mused a month ago about possibly losing control of his Web-based empire in a proxy battle with John Malone.
But a Delaware court handed Diller a surprising victory Friday, allowing Diller’s IAC/InterActiveCorp to proceed with plans to break up into five autonomous, publicly traded units.
Judge Stephen Lamb, vice chancellor of Delaware Chancery Court, decided that a breakup does not violate the majority shareholder rights of Malone’s Liberty Media.
Lamb declined to address Malone’s contention that the breakup constitutes a breach of fiduciary duty to shareholders, saying he could rule on that question at a later date. But the ruling does leave open the possibility that Malone could agitate against the breakup as a board member of IAC.
“Liberty has failed to demonstrate that Diller has breached or threatened to breach any contractual duty he owes to Liberty,” Lamb wrote in a 78-page opinion. “In particular, the court rejects Liberty’s claim that the proposed … spinoff gives rise to any right of consent on Liberty’s part.”
The trial was closely watched in media circles, and while it fell short of Katzenberg v. Walt Disney in terms of courtroom fireworks, the weeklong proceeding revealed the widening rift between the two billionaires.
Malone was infuriated by Diller’s plan because it will cut his voting rights in half by virtue of eliminating a second class of shares that exists for IAC. Liberty owns about 30% of IAC, but because of the voting structure, its voting rights are worth 62%. But Malone and Diller agreed on a proxy more than a decade ago that allows Diller to essentially vote Liberty’s shares.
During the trial and in an incendiary Wall Street Journal article last fall, Malone lambasted Diller’s stewardship of IAC, contending that the company share price had lagged major indices.
Diller, on the witness stand, recalled a December phone conversation during which he told Malone, a longtime friend and ally who helped him assemble many of IAC’s parts, “You’ve lost me.”
After the verdict, Diller said, “I wish this hadn’t happened, but it did. Now it’s over, and we can all get on with our work and our lives.”
IAC’s spinoffs, which seek to bring logic and a coherent investment thesis to a portfolio of disparate Web-oriented brands ranging from Match.com to Ask.com to Ticketmaster, were delayed by the trial. They were originally targeted to close by the third quarter.
The ambitious reorg will find Diller in a still-unspecified managerial role at one of the units. The spun-off divisions would be headed by LendingTree.com, Interval (a timeshare website), the HSN home-shopping entity and Ticketmaster. The original IAC will continue to exist.
Another potential scenario would see Malone agree to drop his opposition to the spinoffs in exchange for certain IAC assets.
IAC shareholders hailed the news late Friday, boosting the stock more than 5% after hours. It closed Friday at $20.49, well off its 52-week high of $39.06.
Liberty Media shares gave up a few cents after hours, having finished the week at $22.90.