WILMINGTON, Del.—After hearing five days of testimony, a judge ordered attorneys on Friday to submit written arguments that could decide the fate of chief executive Barry Diller’s proposed breakup of the IAC/InterActiveCorp media conglomerate.
Vice-chancellor Stephen Lamb gave attorneys for IAC and Liberty Media one week to submit briefs outlining their positions on Diller’s authority under the proxy granted to him by Liberty, and on Liberty’s move to oust Diller and other directors from the IAC board.
Diller announced in November that he wants to spin off IAC’s HSN home shopping network, Ticketmaster ticketing service, Interval time-share business and LendingTree mortgage referral units. The plan is being challenged by Englewood, Colo.-based Liberty Media, which holds 62 percent of the voting power of IAC’s stock and says Diller’s plan would unfairly dilute that power in the spinoffs.
Liberty claims that the IAC board has violated its fiduciary duties to shareholders. It alleges that Diller has also violated his contractual agreements with Liberty in planning for each of the spin-off companies to have a single-tier voting structure, with each share of common stock having equal voting power. That structure would reduce Liberty’s 62 percent voting power in IAC to about 30 percent voting power in each of the spinoffs.
Lamb asked attorneys to submit written arguments on whether it is premature for him to consider Liberty’s fiduciary and contract claims, given that the IAC board has yet to vote on the spinoff plan, which might also be put to a shareholder vote.
The judge also wants to see written arguments on IAC’s claim that Diller has the authority to vote Liberty’s proxy in favor of the single-tier spinoff, and, if not, whether he has repudiated the proxy with the actions he has taken so far.
Lamb also will consider Liberty’s related argument asking him to approve its decision to oust Diller, his wife Diane Von Furstenberg, and other members of the IAC board.
The judge indicated that he could issue a ruling on those preliminary issues by March 28. If he decides that Liberty’s fiduciary and contract claims are ripe for a decision, he may ask for additional briefing on those arguments.
Meanwhile, questions posed to Diller by Liberty’s attorneys suggest that if the judge withholds a decision on the fiduciary and contract claims and the IAC board subsequently approves a single-tier spinoff plan, the parties likely will find themselves back in court.
Diller, who sparred verbally with Liberty attorney Kevin Abrams throughout two days of testimony, said he enjoyed his time on the witness stand, despite appearing exasperated at times and describing one line of questioning by Abrams as “silliness.”
“It was a new experience for me… I liked the cut and thrust of it,” Diller said after the trial.
“It reinforced my belief that we’re on the side of the angels on this,” he added.
In his testimony, Diller repeatedly emphasized his belief that Liberty gave up most if its veto rights over IAC’s actions years ago, and that the spinoff plan is in the best interests of shareholders.
Abrams suggested that Diller’s true motive is to rid himself of Liberty’s influence and strengthen his control of IAC.
Liberty attorneys contend that Diller is using the threat of single-tier voting in the spinoffs to force Liberty to swap its IAC shares for certain assets, which might include one of the spinoffs. In the event of a swap, Diller would be able to convert his single-vote shares in IAC into Liberty’s high-vote shares, which could leave him with a majority interest.
Much of the trial involved wrangling over a provision in Liberty’s governance agreement with Diller about matters requiring Liberty’s approval before IAC can act.
Attorneys for Diller argue that the provision pertains only to actions that would involve regulatory matters or that would result in IAC’s debt ratio exceeding a certain threshold.
Liberty’s attorneys argue that Liberty has veto rights over contingent matters affecting its ownership rights. It must give consent to the spinoff because it would dilute its voting power.
