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Malone Gets an Out From IAC

IAC/InterActiveCorp chairman Barry Diller's decision to split his Internet and television conglomerate into five separate entities could create the exit path from IAC that Liberty Media chairman John Malone is after.

Malone's Liberty owns a 24% economic interest (and 56% voting stake) in IAC, votes Malone has ceded to Diller and a position Malone would like to monetize.

IAC's plan, disclosed last Monday, is to split into five separate publicly traded companies.

Two of them would be IAC, with online properties like Ask.com and CitySearch, and HSN, with the shopping network, Web site hsn.com and the Cornerstone Brands line of catalogs, Web sites and retail locations.

The other three entities would be online lender LendingTree; online travel company Interval; and online ticketing and entertainment giant Ticketmaster.

The final structure is still being worked on, and it has not yet been determined if the split would require a majority vote of shareholders. IAC said shareholders would own 100% of the combined entities and that the split would be a tax-free transaction.

Diller would continue as IAC chairman and CEO. Mindy Grossman, Sean Moriarty, CD Davies and Craig Nash would remain as chiefs at HSN, Ticketmaster, LendingTree and Interval, respectively. Bret Violette would stay president of RealEstate.com, part of the LendingTree unit.

The structure could let Liberty exchange IAC stock for shares of HSN, the second largest home-shopping channel in the country after Liberty's own QVC.

Analysts have long speculated about a QVC/HSN marriage, and earlier this year the two companies tried to work out a deal, but it collapsed mainly because of differences on valuations between the two entities.

At the Natixis Bleichroeder Hidden Gems conference in New York in October, Liberty CEO Greg Maffei said that while Liberty and IAC had different views about HSN's value, he hoped the two could reach some agreement.

“We're not happy carrying a minority stake, but over the long haul it would be difficult to imagine exchanging our stake for something that is undervalued,” Maffei said.

A poor valuation of IAC as a whole — analysts have been saying for months that the company is worth more on a sum-of-the-parts basis — prompted Diller to take a look at splitting up IAC.

On a teleconference with analysts and reporters on Nov. 5, Diller said he began contemplating a split in the summer.

“I started to think about time and the reality of things. I started to think about my frustration, others' frustration, shareholders' frustration about our never ever getting a valuation that was pretty close to what the values of the entities was,” Diller said.

Diller also said Malone, as an IAC board member, was briefed on the decision to split and was “at the end one of the unanimous approvers of the transaction.”

IAC has not said when the actual split will occur, but several analysts believe it could happen by next June.

In a research note, Natixis Bleichroeder media analyst Jeff Shelton said there were still questions as to whether Liberty will preserve its path to control over the new IAC entity.

Diller on the call said Liberty's control path is unimpeded at IAC. But as far as controlling the other post-split entities, he said “we have yet to work that out.”

“In the meantime, IAC remains free to divest assets and, in our view, it is possible that a Liberty Media/HSN (or other asset) swap could be done,” Shelton said in the note. “We believe the two entities are still far apart on price, but that this move could act as a catalyst for a meeting of the minds, as ownership of five separate companies would make it even harder for Liberty to tax-efficiently monetize its IAC equity stake.”