ANALYSIS: Diller Win Opens Door for Malone Divorce

In a Diller/Malone Divorce, Malone's Liberty Media Would Likely Walk Away with HSN
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After Barry Diller received a big court victory March 28, the media mogul is free to pursue the breakup of his InterActiveCorp and separately is expected to negotiate a divorce with shareholder John Malone. Any divorce would likely involve selling HSN to Malone’s Liberty Media as part of a transaction in which Liberty sells back its 30% equity stake in IAC.

The 78-page Delaware court decision cleared the way for Diller to pursue the breakup of IAC that would eliminate Liberty’s supervoting stock. The decision also rejected Liberty’s efforts to replace IAC’s board and rejected Liberty’s contention that it could veto any breakup of IAC. The ruling left the door open for Liberty to sue the IAC board for breach of fiduciary duties, but that’s a high bar to clear.

In total, that clarifies that Diller has a strong negotiating position and Liberty does not. IAC and Liberty held divorce talks previously but were unable to reach an agreement prior to Liberty filing suit against IAC in January.

Neither side is commenting extensively on future moves, other than IAC saying it will pursue its breakup plan, which it previously stated that it wants to complete by the end of the third quarter. Liberty said in a statement: “Whether we take any further legal action … will depend on the course pursued by the IAC board.”.

Liberty covets HSN -- which is valued at $2.4 billion -- because it could be combined with its QVC. Also, analysts said Liberty worries that if HSN is spun off into a smaller, pure-play cable shopping company, its rival, Comcast, might try to buy HSN.

Liberty stated in a press release that it doesn’t object to the IAC breakup, but it does not want its supermajority voting eliminated. Liberty’s 30% equity stake in IAC is magnified to 62% voting control with the supervoting stock, which Diller proposes to eliminate to create one class of stock with equal voting rights. Diller himself owns 3% of IAC equity.

In November, Diller proposed spinning off four businesses of the $6.4 billion-revenue IAC into separate companies that would be nimble to attempt to boost IAC’s lagging stock price, which had irked Liberty. IAC plans to spin off Interval International, finance company Lending Tree, Ticketmaster and HSN.

Years ago, Liberty agreed to let Diller vote its supervoting stake, but it became dissatisfied after IAC’s share price slumped on Diller’s watch.

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