Liberty Media Corp. Interactive, the stock that tracks the performance of John Malone’s QVC home- shopping unit, may gain as much as 15 percent from the Colorado billionaire’s faceoff against Barry Diller in a Delaware court.
Malone heads to trial March 10 to stop Diller’s plan to break up IAC/InteractiveCorp. Some analysts expect a settlement that would let Malone swap his 30 percent stake in IAC for its Ticketmaster or HSN home-shopping units. Such a deal would be tax-free and could benefit Liberty Interactive, whose shares have fallen 20 percent this year before today.
“Their ownership in IAC isn’t getting full value now,” said Vijay Jayant, an analyst at Lehman Bros. Holdings in New York. Jayant, who has an “overweight” recommendation on Douglas County-based Liberty Interactive, estimates that HSN’s $250 million in annual cash flow would add $1.50 to the tracking stock’s Nasdaq trading price of $15.21. Almost 80 cents a share more could come from tax savings on a possible swap.
Investors haven’t factored a Malone victory into Liberty Interactive stock. Diller predicted last month he would succeed in court and split IAC into five parts by midyear. The breakup plan would stick Liberty Interactive shareholders with an estimated tax obligation of up to $450 million, based on a Bloomberg analysis of IAC’s regulatory filings.
Delaware Chancery Judge Stephen Lamb isn’t likely to let the breakup plan stand if Diller consciously added to Malone’s tax burden, said Charles Elson, who heads the University of Delaware’s Center for Corporate Governance.
Diller, 66, is chairman and chief executive officer of IAC. He controls Liberty’s 62 percent voting stake in IAC through a proxy agreement and has said he would exercise those rights in favor of the breakup. Malone is trying to unseat Diller at IAC and gain voting control of his stock.
As part of the arrangement, Diller until January headed four Liberty-owned companies that hold a 48 percent voting stake in IAC.
In that capacity, Diller has an obligation to serve Liberty’s interests, Elson said.
“For Diller to vote those shares in a way that screws their owner, Malone has an issue there,” said Robert Suggs, a professor of corporations law at the University of Maryland.
Diller’s plan, announced Nov. 5, would split IAC into five companies. HSN and Ticketmaster, the world’s largest ticket broker, would become independent, as would online-mortgage service LendingTree and time-share manager Interval International.
Search engine would remain with IAC.
The deal violates agreements between Liberty, IAC and Diller by eliminating Malone’s super-voting Class B stock at the spinoff companies, his lawyers have said in court papers.
Liberty also contends that IAC directors violated duties to protect Liberty’s financial interests.
Malone, who turns 67 this week, declined to comment, said spokesman John Orr.
IAC in court papers denies any obligation to give Liberty extra voting rights at the spinoffs and says Malone, who is on its board, initially backed the plan. IAC spokeswoman Stacy Simpson declined to comment.
By pressing his case against Diller, Malone at a minimum may delay IAC’s breakup plans, said Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Co. in New York. Malone has a chance to win control of IAC, said Lehman’s Jayant. Diller acknowledged at a panel this week that he could lose, Variety said yesterday.
