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IAC’s Diller looks to get free of Liberty

Proposal aims to reduce Liberty's voting power

Nothing beats the spectacle of old-fashioned moguls trying to outmaneuver one another, headlines blazing.

Liberty Media topper John Malone and his one-time ally Barry Diller, the IAC/InterActive Corp. honcho, are doing just that, with control of billions in assets riding on the outcome.

Late last week, Liberty sued Diller in Delaware Chancery Court to prevent him from slicing up IAC, which has assets that include the Home Shopping Network and Ticketmaster, in a way that Liberty says would dilute its own stake in the businesses.

Last fall, Diller announced plans to spin off HSN, Ticketmaster, the Interval timeshare biz and online mortgage broker LendingTree. He is also said to be seeking buyers for a number of IAC’s other businesses. He doesn’t want Malone and Liberty, which controls about 30% of IAC’s equity (made up of Class A and B common stock) and 62% of its voting control, looking over his shoulder. So IAC’s proposal calls for the spun-off companies to have only one class of stock, which would dilute Liberty’s voting power by half.

Back in IAC’s early days, Diller welcomed Malone’s backing and the cash infusion he provided. But Liberty became a fly in the ointment as the company’s stock price faltered and Malone took a more active interest in his investment.

IAC shares closed at $24.40 on Friday, down 2% from the day before.

The stock is well off its 52-week high of $40.99. And back in 2003, it was trading at more than $80 a share.

In its lawsuit, Liberty accuses Diller — who made billions in a series of deals in connection with Vivendi and NBC Universal — of staging a “corporate coup” and says, “If consummated, the spinoff will free him from the watchful eye of a controlling stockholder.”

Under the breakup plan approved by IAC directors, Liberty’s voting power would shrink from about 62% in IAC to about 30% in the spun-off companies.

Liberty’s lawsuit responded to a motion IAC attorneys filed in Delaware Chancery Court last Wednesday, asking that the spinoff plan and one-tier voting structure be declared proper under IAC’s bylaws and certificate of incorporation.

IAC argued that maintaining a two-tier voting structure in the spinoff companies would give Liberty control of each, a power it currently does not have because of Diller’s proxy. That’s a reference to a crucial provision in which Liberty surrendered its voting rights to Diller/IAC. In other words, Diller has the authority to vote Liberty’s stock. And he intends to vote that stock in favor of the split.

“Under the proxy, Diller is entitled to vote the shares without regard to the directions of Liberty and without subservience to the specific interests of Liberty,” says IAC.

Liberty argues that the spinoffs constitute “fundamental change” that requires Liberty’s consent before Diller can exercise his proxy authority.