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Readying For Another Round

IAC/InterActiveCorp chairman Barry Diller may have won a moral and legal victory against Liberty Media last month, but what’s next for the Internet giant.

The March 28 decision by Delaware Chancery Court Judge Stephen Lamb appeared to pave the way for Diller to pursue the split of IAC into five separate, publicly traded companies. But looming in the background is the possibility that Liberty will try to block the move again. Judge Lamb's decision appeared to leave that door open on March 28, when he stated in his opinion that Liberty's blocking rights were moot because the IAC board had not yet voted on the split. It is expected that once IAC's board does vote, an affirmative election for the split could trigger yet another Liberty lawsuit.

UP TO THE BOARD



In his decision, Lamb said that while IAC did not need Liberty's permission to split the companies — Liberty had given Diller an irrevocable proxy to vote its shares in 1995 — he was holding off on deciding the legality of the split until the IAC board voted on the matter.

“The simple, inescapable fact is that the IAC directors have not yet finally authorized the spinoff and have not even considered many of the essential terms of that transaction, including the voting structure of the spincos,” Lamb wrote. “While the court agrees with IAC that a single-tier voting structure for the spincos would not violate the governance agreements or any black-letter rule of Delaware law, Liberty's challenge to the ultimate decision of the IAC board to authorize the spin-off will, of course, depend on the decisions actually made and the record of the directors' deliberations.”

Lamb continued that because there is no “ripe dispute,” he wouldn't make a ruling on that aspect of the case but would “retain jurisdiction over these claims for later resolution on a more complete record, if the need arises.”

Liberty also appeared to leave the door open to further litigation.

“We are disappointed that the court did not agree with our position on a number of our claims,” Liberty said in a statement. “We are evaluating all of our options. Whether we take any further legal action to enforce these duties will depend on the course pursued by the IAC board.”

IAC had proposed in November splitting into five separate publicly traded entities — IAC, HSN, Interval International, Ticketmaster and Lending Tree. The move, the company said at the time, would unlock hidden value in each of the companies.

Liberty had originally signed off on the deal, but balked after it learned that IAC was proposing a single-tier structure for the spin-offs, which could effectively halve Liberty's voting control in the entities from 62% to 30%.

Janco Partners analyst April Horace said that the IAC board decision on the split will be key.

“If the board decides to go with a two-class stock for [the spinoff], then Liberty won,” Horace said. “If they decide that the [spinoff] only needs one class of shares, I'm sure that Liberty will send them right back into court.”

That could all be moot if the two sides agree to an asset swap, one that would most likely involve IAC's home-shopping network HSN. Liberty has long eyed HSN as a logical partner to its own home-shopping giant, QVC. And though Liberty and IAC have tried to negotiate such a swap in the past, they have been hamstrung by differing valuations for the asset.

PRICE SHOPPING



“It could go away if they get HSN, but at what price?” Horace asked. She added that Liberty has contended in the past that HSN does not warrant the same cash flow multiple as the much larger and stronger QVC, a stance that IAC has opposed. But a deal that involves HSN and cash or HSN and another asset — possibly online travel company Interval International — could make all the difference.

During the trial, Pamela Seymon, a partner in Wachtell, Lipton, Rosen & Katz (IAC's outside counsel) testified that IAC and Liberty were engaged in settlement negotiations. She said the talks centered on proposals to swap assets between the two parties, but declined to elaborate.