PR Resource – Muarateweh.net

By Sophia Pearson and Phil Milford

March 28 (Bloomberg) — Liberty Media Corp.’s billionaire Chairman John Malone can’t oust IAC/InterActiveCorp Chairman Barry Diller and six directors, a judge ruled, thwarting Malone’s effort to gain control of the Internet company. IAC rose as much as 9.7 percent in after-market trading.

Liberty had argued Diller should be removed because his proposal to split IAC into five parts violated a proxy agreement giving him control of Liberty’s majority voting power in IAC. In a ruling issued today in Wilmington, Delaware Chancery Court Judge Stephen Lamb found the plan didn’t violate the accord.

Lamb’s decision came after a five-day trial to settle a dispute over the control of IAC. Diller, 66, is dueling with Malone, 67, over the spinoff plan, which would cut Liberty’s voting power in half in four new companies. Lamb’s ruling paves the way for Diller to move ahead with the proposal, which requires the approval of IAC’s board.

“This alleviates a paralyzing uncertainty,” said Standard & Poor’s Scott Kessler, who recommends IAC shares but doesn’t own them. “It lets people look at the true value of the company and lets them be more optimistic.”

Liberty, based in Englewood, Colorado, could still block the spinoff plan if Lamb decides Diller and the IAC directors violated their fiduciary duties to shareholders by pursuing the idea, a matter he will rule on later.

IAC rose as much as $2.01 to $22.50 in after-market trading from a close of $20.49 at 4 p.m. in Nasdaq Stock Market trading. Liberty Interactive, the tracking stock for QVC and other Liberty shopping units, fell 53 cents to $16.16.

Diller’s Plan

Diller’s plan to split up New York-based IAC calls for a single-vote-per-share structure at four independent companies. Malone wants to maintain the existing structure which gives him 62 percent control of IAC with just 30 percent of the stock.

Liberty argued that the single-tier structure would unfairly dilute its control of the spinoffs, that the plan requires Liberty’s consent and that Diller’s idea is just an attempt to preserve his IAC legacy.

IAC countered that Diller has the right to vote Liberty’s shares without its permission under a series of changes to the proxy agreement negotiated in 2001. Diller testified during the trial that the spinoff structure was fair even though it would take away Liberty’s majority control.

The companies that would be spun off are HSN home-shopping network, top ticket broker Ticketmaster, the Interval International, a vacation timeshare service, and online mortgage firm LendingTree. What remained of IAC would include the Ask.com search engine and the Match.com online dating Web site.

Unlock Value

Diller argued in court that the spinoff would unlock value that has gone unrealized as investors shunned IAC’s conglomerate- style array of businesses. The separate businesses are worth about $9.3 billion, according to the average of six analysts’ sum-of-the-parts valuation models compiled by Bloomberg. IAC’s current market value is about $5.7 billion.

The projected breakup values may be too high because IAC shares have plunged since the reports were written, Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Co., said in an interview.

IAC’s shares have fallen 24 percent this year and are trading 57 percent lower than their peak in July 2003. The company’s market value has plummeted from a high of $30 billion five years ago to $12 billion today, counting both the stock of IAC and of travel site Expedia Inc., which IAC spun off in 2005. During the trial, Malone criticized Diller for reaping more than $1 billion in compensation as IAC lost value.

Diller testified that Malone’s numbers included proceeds from cashing stock options granted in 1995 and 1997, as well as compensation he earned from Vivendi Universal Entertainment after IAC sold its movie and cable assets to that company in 2002.

Directors Targeted

Liberty had sought to oust Diller, Warner Music Group Chief Executive Officer Edgar Bronfman Jr., fashion designer Diane Von Furstenberg, Alan G. Spoon, Victor Kaufman, Arthur Martinez and Steven Rattner from the board. Von Furstenberg is Diller’s wife.

The case hinged on a narrow clause in IAC’s corporate governance agreement that protects Liberty against limits to its voting rights. The “catchall” clause bars IAC and Diller from conducting any transaction that restricts Liberty’s rights. It also gives Liberty veto power in matters outside routine business operations, such as a spinoff.

Lawyers for IAC argued that Liberty gave up its veto rights when it agreed to contract changes in 2001. The new terms called for Liberty’s approval only if IAC racked up debt or tried to reduce Liberty’s voting rights. The clause on voting rights only applied to regulatory matters, IAC lawyers argued.

Malone Not Involved

Malone acknowledged during the trial that he wasn’t involved in the contract changes, which were tied to IAC’s sale of its cable-television assets to Vivendi SA. Diller used the proceeds to finance acquisitions.

Under Diller, IAC has expanded to include more than 60 brands since he purchased a 20 percent stake in Malone’s Silver King Communications in 1995. During the past 12 years, Diller bought USA Networks, Expedia, owner of the world’s largest consumer travel agency, and other brands, changing the name of the parent company several times as his emphasis changed and he sold or spun off units.

Diller built the current IAC in a series of deals from 2002 to 2004 after selling USA and other cable channels to Vivendi and buying Expedia, Ticketmaster and Hotels.com in deals that valued those companies at almost $17 billion. In 2006, he started a programming unit to acquire and develop Web sites that derive revenue from advertising.

Relationship Soured

The relationship between Malone and Diller began to sour after Liberty hired Greg Maffei as president and CEO in late 2005. Diller and Maffei, 47, first clashed during IAC’s takeover of Expedia in 2002. As chairman of Expedia’s board, Maffei rejected Diller’s initial offer, forcing Diller to submit a higher bid months later.

The alliance between Liberty and IAC took another hit early last year after negotiations over an asset swap stalled. The relationship crumbled in after Malone criticized Diller’s performance in an Oct. 27 Wall Street Journal story. Shortly after, Diller proposed the spinoff plan. Liberty sued on Jan. 29 to oust him.

Most of IAC’s largest businesses face fundamental challenges. Ask.com has failed to meet IAC’s goal of nearly doubling its share of U.S. Web searches, Diller testified. Ticketmaster was slow to respond to the rise of consumer-to- consumer ticket sales and EBay Inc.’s StubHub.com became the leader of that market. HSN’s operating profit before amortization fell 22 percent last year to $210.8 million.

In February, IAC reported a fourth-quarter loss after writing down the value of LendingTree. IAC’s net loss was $369.9 million, or $1.31 a share, compared with a profit of $15.3 million, or 5 cents, a year earlier. LendingTree had an operating loss of $508.1 million.

The consolidated case is: In re IAC/InterActiveCorp, CA3486, Delaware Chancery Court (Wilmington).

Original post on Bloomberg