NYTimes.com
A Battle of the Moguls Over IAC
Monday February 4, 2008 11:38 pm ET
By GERALDINE FABRIKANT and BROOKS BARNES

Like Hollywood stars stuck in a rut, Barry Diller and John C. Malone are always cast in the same contrasting roles. Mr. Diller, 65, lives a razzle-dazzle life of extravagance and celebrity. If he isn’t flying off to Capri with his wife, the socialite and fashion designer Diane von Furstenberg, he is running his company, IAC/InterActiveCorp, from a sculptured $133 million tower designed by Frank Gehry on the Hudson River.

Resembling a melting iceberg, the building is near the marina where Mr. Diller berths one of his several yachts — toys that have doubled as places to hold board meetings.

Mr. Malone, 66, rules over Liberty Media from the high plains of Colorado, where he wears flannel, takes afternoon hikes with his dogs and fastidiously avoids the spotlight. A low-key cable pioneer, Mr. Malone has located his headquarters in a mundane office park unlikely to catch the eye of any architecture aficionado.

Mr. Malone also has his indulgences; these run toward a custom-built motor home and 75,000 acres of wooded Maine real estate.

But a battle royal shaping up between the two over the future of IAC/Interactive is not about their differences, despite the juicy material this provides. It is more about the deal-making skills that the two men have in common but that have put them at odds in a battle of lawsuits and public name-calling.

They first worked together in the 1990s, after Mr. Diller lost his bid for the Paramount studio he had once run and sought the backing of Mr. Malone, then the country’s biggest cable owner, in building a new venture.

Both men approach business by shuffling and reshuffling assets — often through complicated, almost byzantine deals. Both are shrewd negotiators, who associates say are increasingly concerned about their legacies. And both have been accused by critics of pursuing deals that ended up benefiting themselves more than their shareholders.

A pending breakup of IAC/Interactive pits them against one another. The Internet conglomerate, which owns a clutch of disparate businesses like Ticketmaster, the Home Shopping Network and LendingTree.com, was built over the last decade by Mr. Diller with Mr. Malone’s backing.

Mr. Malone’s Liberty Media owns 30 percent of the equity, while Mr. Diller owns just 3.8 percent. But in creating IAC/Interactive, Mr. Malone gave Mr. Diller power over Liberty’s supervoting and ordinary shares, so that Mr. Diller controls 60 percent of the votes.

In an effort to halt the company’s plummeting market value, Mr. Diller wants to break it into five publicly traded parts, stripping Liberty of its voting premium at the four spinoff entities. He has told associates it would be better for shareholders to end the dual-class voting structure at the spun-off companies because it would give them more independence from majority votes.

The planned spinoff has had some positive reception from analysts. “I think the big strength of InteractiveCorp is its deal-making ability,” said Jeffrey Lindsay of Sanford C. Bernstein & Company. ”It is innovative and creative.”

But Liberty sees the move as an illegal effort to destroy its supervoting rights. Dennis H. Leibowitz, who runs Act II Partners, a media hedge fund, said Mr. Diller was trying to have his cake and eat it too.

“He is using his proxy over Malone’s votes to create something that Malone objects to by pre-empting their voting agreement,” Mr. Liebowitz said.

The fight has turned ugly. Liberty has asked a Delaware court for the right to take control of IAC/InterActiveCorp and oust Mr. Diller. The trial is scheduled in March; in the meantime, IAC/InterActive’s board must give a five-day notice before taking any action outside routine operations.

In response, Mr. Diller’s camp has issued statements calling Liberty’s actions “beyond comprehension” and “truly desperate.” To Liberty’s request to remove Mr. Diller and his allies, including his wife, from the board, Mr. Diller said he was “beginning to think these people are insane.”

Liberty’s frustrations were growing for some time before the announcement of the planned breakup. In the last four years, IAC’s stock has plummeted more than 25 percent, even as the S.& P. 500-stock index rose about 23 percent. “Liberty is disappointed with the stock performance of IAC,” said Gregory B. Maffei, the chief executive and Mr. Malone’s chief lieutenant.

Mr. Malone was not the only one disenchanted. Capital Research and Management, where the longtime media investor Gordon Crawford had been a fan, has dumped shares. Mr. Leibowitz of Act II Partners also sold shares.

A particular irritant for Liberty was Mr. Diller’s compensation, according to a court filing. As IAC/Interactive faltered in 2005, Mr. Diller reaped a windfall, $85 million according to one compensation analysis, $295 million windfall according to another. In either case, he was the nation’s highest-paid executive in a year when his company’s stock price fell 7.7 percent. The same year, he spun off the travel site Expedia and made $173 million.

IAC/Interactive has been built by Mr. Diller’s deal making. The company now owns 63 businesses, according to Mr. Diller.

Mr. Diller was comfortable with the idea of spinning off LendingTree, the online lending business, for which IAC paid about $715 million in 2003, or a rich four times revenue, according to Christopher Marangi, an analyst at Gabelli & Company. In the last year, its profits have plummeted in the wake of the subprime-lending crisis. “I have little to no interest and that is not how I want to live my life, “ Mr. Diller said.

That surprising admission gets at the heart of a perception of IAC/Interactive — that Mr. Diller, so successful at building new ventures for others at ABC, Fox and Paramount, has not stopped deal making long enough to manage similar success for himself.

Bennett Stewart, chief executive of EVA Dimensions, a financial research firm, noted that IAC’s return on total capital is 5.5 percent, but its cost of capital is running at 9.8 percent for the four quarters ended Sept. 30. Mr. Stewart criticized the company’s “ceaseless, impatient, opportunistic behavior to buy things,” adding, “It is a restless quest in a somewhat directionless journey.”

At a media conference in November in Monte Carlo, Mr. Diller was asked why he wanted to split the company into five entities. “We were being superficial managers,” he said.

In a telephone interview on Friday, he said the remark was out of context. What he meant was that to “manage 63 brands meant you were being superficial at various times.”



Mail to Friend Email Story
Alerts Set News Alert
Printer
Version  Print Story 


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
Copyright © 2014 NYTimes.com. All rights reserved.