WILMINGTON, Del.—Though Liberty Media holds the controlling interest in an Internet conglomerate that includes Ticketmaster, Citysearch, and LendingTree, Liberty’s chairman testified Monday that billionaire Barry Diller believes he alone calls the shots.
“He frequently refers to it as his business,” said John Malone, who is challenging Diller’s plan to break IAC/Interactive Corp. into five separate publicly traded companies—and eliminate Liberty’s control.
In November, Diller, the chairman who built the conglomerate mostly through acquisitions, announced plans to spin off IAC’s HSN home shopping network, Ticketmaster ticketing service, Interval time-share business and LendingTree mortgage referral units.
While Liberty Media Corp. owns about 30 percent of IAC’s equity, it controls about 62 percent of the voting power because of a dual-share structure. Diller has controlled Liberty’s votes for years under a proxy agreement with Liberty.
At question in a lawsuit filed earlier this year is whether Diller gave up those rights when he went against Liberty’s will in pushing forward a plan to carve up IAC.
Under Diller’s plan, which has been approved by IAC directors, each spun-off company would have a single-tier voting structure. Liberty’s voting power thus would shrink to about 30 percent.
“I think it’s very unfair,” said Malone, the lead witness in a Chancery Court trial that could determine IAC’s fate.
Malone testified that after he questioned whether the spinoff plan should be put to a shareholder vote, Diller said he would use Liberty’s proxy power to force the deal.
“My opinion is that it’s a breach of the stewardship that we granted him when we started this whole relationship,” Malone said under questioning by Liberty attorney Kevin Abrams.
William Berkman, a Liberty appointee to the IAC board, confirmed Malone’s recollection of Diller’s response when Malone said the spinoff plan should be put to a shareholder vote because it involved issues regarding the board’s fiduciary duties.
“He pushed it, and Mr. Diller responded in a crystal clear fashion: ‘We’ll have a vote, I’ll vote the shares, … and we’ll have the spinoff.’ The room was quiet.”
Berkman said he was surprised when he learned in early January about the proposed one-class voting structure for the spinoffs.
“First and foremost, there had been a lot of trust between these two gentlemen for a long time,” he said, adding that the plan also raised questions of “fundamental fairness” and was in contrast to the two-tier structure in IAC’s previous spinoff of Expedia.
IAC attorney Marc Wolinsky said Diller has broad powers under the proxy agreement with Liberty, and that Malone recognized as early as 2006 that Liberty might not have the right to block a sale.
In a February 2006 letter, according to Wolinsky, Malone asked Diller to consent to changes in the agreement, including a clear acknowledgment that Liberty had a right to vote its shares on any IAC sale.
“Mr. Diller ducked the question, right?” Wolinsky asked.
Malone said he didn’t expect a direct answer from Diller, but that he saw the request as a way to begin a “broader discussion” of Liberty’s relationship with Diller.
While admitting that, in general terms, he liked the idea of spinoffs, Malone rejected the notion that he had signaled acquiescence to Diller’s plan in a December phone call.
“The idea of excluding us completely from the boards seemed to me pretty outrageous. … It was clearly, to me, a crossing of the Rubicon,” Malone said. “I was caught flat-footed on the phone call and didn’t respond with any thought through response.”
Malone and Diller joined up in the mid-1990s and worked together as Diller built IAC, but the two have been at odds in recent years amid disappointing share performance.
In addition to blocking the single-tier spinoff transactions and repealing Diller’s proxy rights, Malone’s lawyers are seeking the removal of seven IAC board members, including Diller and his wife, designer Dianne Von Furstenberg.
Diller is scheduled to testify later this week.
