Liberty Media upped the ante in its brewing battle with IAC/InterActiveCorp, filing a suit in Delaware Chancery Court to block a move by the Internet giant to split into five separate companies.
Liberty, which owns a 29.9% economic stake but 61.7% of the vote of IAC through Class B super-voting shares, apparently has been stewing for months after IAC chairman Barry Diller proposed the split in November. According to the suit filed on Jan. 24, Liberty wants to ensure that the dual-class voting structure currently in place at IAC will be retained after the split. According to court documents, IAC has proposed a single-tier voting structure for the five entities, which would dilute Liberty’s control.
Liberty and Diller have an unusual relationship -- although Liberty technically has voting control of IAC, it gave Diller an irrevocable proxy to vote its stake in 2005, as part of an amended agreement. The Liberty suit comes just two days after IAC sued in the same court to seek the right to complete the split on its own terms.
In November, Diller proposed splitting IAC into five separate units -- TicketMaster, HSN, IAC, Interval International and Lending Tree -- in an effort to simplify the company’s complicated structure.
But Liberty said the split -- and Diller’s attempt to squash the dual-class structure of the company -- was tantamount to a “corporate coup” of which the IAC chairman was the “chief architect,” according to the suit.
According to the suit, Liberty and Diller’s relationship began to deteriorate in 2001, when the Denver media giant was allowed to appoint two members to IAC board of directors. Although Diller had a big hand in naming the remaining 10 board members, according to Liberty he chafed at the Liberty directors’ prodding to be more financially responsible, instead opting to preserve his own legacy and focus on succession issues. In 2006, according to the suit, Diller began focusing on ways to sever the relationship with Liberty.
“This simmering tension between Liberty and Diller matured into full-blown conflict in late 2007,” the suit stated, when Diller proposed the split.
The rift comes as a bit of a surprise, especially after Liberty chairman John Malone praised the split on a conference call with analysts shortly after the proposal was made. It was also thought that the restructuring would allow the two companies to implement an amicable break-up – Liberty could cede its control of some IAC entities in return for full control of IAC’s HSN shopping channel, which could then merge with Liberty’s own cable shopping network QVC.
At an industry conference in December, Liberty CEO Greg Maffei said that the two parties had been in negotiations regarding HSN, and although talks broke down because of valuation differences, he was confident that a compromise could be made.
“We’re waiting to hear from Barry and then negotiations will begin,” Maffei said at the UBS securities Media & Entertainment conference in December.
Miller Tabak media analyst David Joyce said that while the two parties have been negotiating for months, Liberty may have the upper hand.
“Liberty might have reasonable legal justification to take back that voting agreement with Barry Diller,” Joyce said. “Clearly the relationship between Barry Diller and John Malone has turned south over the past year.”