NEW YORK—IAC chairman Barry Diller shot back Tuesday at Liberty Media Corp. CEO John Malone, saying it was “preposterous” that Malone’s lawyers have filed court papers to remove him from the board in an effort to gain control of the company.
“Liberty does not control IAC,” IAC said in a statement.
New York-based IAC is an Internet conglomerate Diller has built mainly through acquisitions, and owns such brands as Ask.com, Match.com, Evite, Citysearch, Ticketmaster and Lending Tree.
While Englewood, Colo.-based Liberty Media owns about 30 percent of IAC’s equity, it controls about 62 percent of the voting power because of a dual-share structure under which it holds all outstanding Class B common stock, which carries 10 votes per share. It owns about 23 percent of IAC common stock, which is entitled to one vote per share.
Under an agreement, Diller has controlled Liberty’s votes for years. At question in the lawsuit filed Monday is whether Liberty can reclaim those voting rights, since it claims Diller gave up those rights when he went against Liberty’s will in pushing forward with a plan to split up IAC/InterActiveCorp.
“We think the lawsuit will delay IACI’s restructuring plans from early Q3 to at least to the end of 2008 and likely indefinitely,” Sanford Bernstein analyst Jeffrey Lindsay told investors on Tuesday. “It’s too early to tell at this stage if the move to oust Diller will gain traction, but it does seem likely to us that the dispute will intensify and will likely delay or derail the spinoff process.
“We see this uncertainty broadly as a negative for the stock,” he wrote.
Lindsay said it was more likely now that IAC would sell its HSN home shopping network, Ticketmaster, LendingTree.com and Interval time-share businesses.
“Liberty has now gone off the deep end, not only alleging that Mr. Diller has somehow materially breached his proxy by which he has voted Liberty’s shares for over 12 years, but also purporting to throw out the incumbent directors and installing its own slate,” IAC said in a statement issued Tuesday.
Liberty’s lawsuit also sought to remove three Diller allies from the board: his wife, designer Dianne Von Furstenberg, Warner Music CEO Edgar Bronfman Jr. and venture capitalist Steven Rattner. Liberty also moved to remove Diller as the sole director of a series of entities called BDTV, a position that gave him roughly half the voting power of Liberty’s stake.
Diller announced plans in November for IAC to spin off its HSN home shopping network, Ticketmaster ticketing service, Interval time-share business and LendingTree mortgage referral units. Under that plan, each of the spinoff companies would have a single-tier voting structure, with each share of common stock having equal voting power. Liberty’s voting power thus would shrink to about 30 percent in the spinoff companies.
Lindsay of Sanford Bernstein said last week that Malone and Liberty had a case of “buyer’s remorse.” He said Liberty regrets giving Diller the voting rights that he is now using to push a break-up plan that dilutes Liberty’s voting power.
But at least one legal expert thought the latest lawsuit had merit.
“Based on what I’m seeing, I think it’s a winner,” an attorney at Carter Ledyard & Milburn, Robert Zito, said about the lawsuit filed Monday. Zito said Liberty’s lawsuit means it doesn’t necessarily need to prove Diller breached his fiduciary duty, only that he acted outside the ordinary course of business and against the interests of Liberty.
The Monday lawsuit is the third filed between the two companies in the past two weeks.
In a complaint filed in Delaware Chancery Court on Wednesday, attorneys for IAC asked that the spinoff plan and one-tier voting structure be declared proper under IAC’s bylaws and certificate of incorporation.
Liberty responded with its own lawsuit a day later, accusing Diller of staging a “corporate coup” and breaching the agreement that gives him proxy authority to vote Liberty’s stock. According to court papers, Diller intends to vote Liberty’s IAC shares in favor of any spinoff transaction requiring IAC shareholder approval.
Malone and Diller joined up in the mid-1990s and have worked together as Diller built IAC’s business. As IAC shares suffered in recent years, the two began to show their differences.
Malone is a cable pioneer and has been chairman of Liberty Media since 1990. A trained engineer, he started his career at Bell Labs/AT&T and rose to become the chief executive of cable company TCI.
Diller started in the mail room at the William Morris Agency after dropping out of UCLA. He is widely known for creating the movie of the week at ABC and creating the Fox Broadcasting Co., and he was previously chief executive of Paramount Pictures.
IAC shares rose 40 cents, or 1.6 percent, to $25.57 in midday trading Tuesday.
———
Associated Press Writer Randall Chase in Delaware contributed to this article.
