WILMINGTON, Delaware (Reuters) - As a legal battle between Barry Diller and John Malone headed to court on Monday, the biggest surprise may just be that two of the media industry’s largest personalities have let their dispute get this far.
IAC/InterActiveCorp Chief Executive Diller and Liberty Media Chairman Malone are fighting over the future structure of IAC under a plan to spin off four of its largest units.
Long-time business partners, their relationship turned bitter when Diller proposed a structure that would dilute Liberty’s voting control over the spin-offs.
Both Diller and Malone are known for their strong wills and complex deal-making, but people who have followed their business dealings are surprised they were unable to settle their differences before the trial in Delaware Chancery Court.
“Diller and Malone have had a relationship for 20-plus years,” said April Horace, an analyst for Janco Partners who has long covered Malone’s Liberty Media. “Malone usually negotiates something ... It does surprise me that this particular time he has not been able to.”
In the meantime, IAC’s outside shareholders continue to see their investment bleed value over fears that the spin-off will be delayed, Diller will be ousted or IAC will be forced to swap assets with Liberty at a lower price to end the dispute.
IAC shares have slid 21 percent since the two companies sued each other in late January. At least two shareholder lawsuits have been filed against IAC’s board, one of them also naming Liberty Media.
“I think the stock is worth $40 and it trades for $19.50,” said one IAC shareholder who did not want to be identified due to a company policy on discussing holdings. “It’s just insane unless you think you’re going to get completely screwed by Malone in some form that you can’t even dream of.”
Sanford C. Bernstein analyst Jeffrey Lindsay still believes the spin-off plan is the best possible outcome for outside shareholders, but he recommends waiting until some white smoke is visible from the proceedings in Delaware. While IAC shares are cheap at this point, they could represent a value trap.
“We can still see downside for IAC investors, especially if a value exchange is made to persuade Liberty Media to forgo its super-voting rights,” Lindsay said in a note to clients on Friday.
Diller moved quickly to calm nerves at the company. “At the end of the day, it’s purely a business dispute,” Diller told employees in an internal memo originally posted online by digital media blog paidContent.org. “We are highly confident in our legal position and are looking forward to proving our case to the judge.”
Malone and Diller had long discussed a potential swap for IAC’s home shopping network HSN, and possibly other assets, in return for Liberty’s stake in IAC, but were unable to agree on the proper value to ascribe to the assets. Liberty holds about 30 percent of IAC but controls 62 percent through a second class of super-voting shares.
What they have swapped is cutting remarks since the legal battle began, with Diller at one point referring to Liberty executives as “insane” and Liberty accusing the former television and film executive of staging a corporate coup.
Even though back-channel talks continued in recent weeks, the two sides remained far apart on how to reach a settlement, a source familiar with IAC’s thinking told Reuters last week. As of Sunday night, no imminent agreement appeared to be in the works.
“John is like a big cat in the Serengeti. He’s pretty fierce and he can lay in wait for quite a while for his prize,” said Mark Robichaux, editor of industry trade Broadcasting & Cable. Robichaux wrote a biographical portrait of Malone in the 2002 book “Cable Cowboy.”
But by taking their battle all the way to court, both stand to lose at least part of their demands, Robichaux said.
Liberty is unlikely to prevail in its request to oust Diller and six of his close associates, including wife Diane Von Furstenberg, from the IAC board, while Diller may not be able to go ahead with the spin-off without a major concession to Liberty on price or control.