What the Barry Diller-John Malone Split Means
After three years of twists, turns, tense negotiations and litigation, Barry Diller and John Malone have finally unraveled their complicated, 17-year business "marriage."
In a deal announced Thursday, Liberty Media has traded its 34% interest in Diller's IAC for $220 million in cash and the assets of Evite and Gifts.com. In classic Malone fashion, the deal is tax free to Liberty shareholders (of whom Malone is the largest).
And in an even bigger surprise, Diller also announced that he will surrender his duties as CEO of IAC to Greg Blatt, now CEO of one of his subsidiaries, Match.com, but will remain active as chairman of the board. One analyst said Diller likely wanted to focus more on bigger-picture vision and strategy - a typical focus for a chairman - than running day-to-day operations as CEO.
"It's been clear to me for some time that this company needs a full-time aggressive and aspirational executive in the CEO role," Diller said in a statement. At least one Wall Street observer took that wording as a hint that IAC may now be ready to look for new acquisition opportunities or spend more on developing emerging businesses, although the company didn't immediately outline any plans.
The statement also seemed to suggest that Diller wasn't full time, when every indication is that he has controlled every major aspect of IAC since he founded the company.
The news comes after recent reports that Diller has used IAC's private airplane and his expense account for his personal recreation. There have been unflattering stories recently that showed pictures of Diller on vacation at a time he has frozen most company salaries and cut back on bonuses. IAC had to report that in 2009 Diller spent about $4,600 a day on his personal travel.
A spokesperson said Diller was unavailable to comment.
Yet while stepping down as CEO, Diller actually has increased his voting power at IAC. As part of the transaction, Diller has exchanged about 4.3 million shares of IAC common stock he personally owns for an equal number of shares of Class B IAC common stock held by Liberty. The Class B stock has greater voting rights and will leave Diller with 34% of IAC and the right to raise his stake to about 41% -- which he indicated he plans to do in the coming year.
"These last 17 years of my association with John Malone and Liberty Media have been a great, and occasionally, wild ride," Diller said.
Diller has known Malone since the 1970s, when he was running Paramount Pictures and then 20th Century Fox, where he worked with Rupert Murdoch to launch the Fox TV network. At the time, Malone operated what became the largest cable TV system operator in the U.S. and was busy creating what became Liberty by taking stakes in numerous program services who wanted to be carried on his cable systems.
When Diller left Fox in 1992, his goal was to get into new media. That led him to a business association with Malone and Brian Roberts of Comcast, who brought him to the QVC shopping network. Diller upgraded QVC's programming and boosted sales, but the partnership fell apart when he tried to use QVC to buy CBS in 1994. Malone and Roberts opposed that effort.
But Malone was clearly impressed with Diller, and in 1995 he put him in charge of the HSN home shopping network, which came with a group of local TV stations under the Silver King banner. Diller negotiated a deal that gave him voting control over the company, even though Malone's entity owned the stock.
HSN later morphed into IAC, which Diller used as a vehicle to build and buy other new-media and Internet properties as well as TV assets. From 1999-2003, the IAC assets grew rapidly, and Malone left Diller alone to run his company.
That growth was hard to sustain in the face of economic changes and increasing competition, and soon Diller and Malone were disagreeing on business strategy. Things grew tense in 2005 when Greg Maffei, a former Microsoft exec, joined Liberty. Maffei and Diller have never gotten along, and in recent months, several sources say Diller stopped talking to Maffei.
Maffei's name was conspicuously absent from the Thursday announcement.
In 2008, Diller announced plans to spin off the IAC companies into five new corporations, which Malone's Liberty said was an effort to dilute its interest. An unusually public battle was settled in a court in Delaware, where Diller was allowed to do his spinoffs.
In an apparent reference to that period, Diller on Thursday thanked Malone "for his support and encouragement throughout (with one brief period of mutual discontent which we both believe was an aberration). This has been a most productive partnership, and I'm glad it will continue in other venues."
The two still share ownership of Expedia, HSN, Lending Tree and Interval International.
"The main benefit we see is a potential detente between Liberty and Barry Diller, which might pave the way for a tax-free exit" of Liberty from Expedia, said Lazard Capital Markets analyst Barton Crockett in a note to investors.
"We have viewed the relationship between Liberty and Diller as frosty of late, driven by litigation over Diller's spinoff of units of IAC, and reflected in steady selling by Liberty of its IAC stake. A chilly relationship is meaningful, because Diller controls Expedia, of which [Liberty] Interactive owns a 24% stake valued at $1.9 billion."
Meanwhile, Malone continues to streamline Liberty Media. He has been selling assets not considered core, including Ascent Media. He also has been paying down debt and buying back shares in anticipation of a reorganization of the company; Liberty Interactive is expected to become a separate entity and stock, while the assets of Liberty Starz and Liberty Capital will be grouped together in a new company with two tracking stocks.
Georg Szalai reported from New York; Alex Ben Block reported from Los Angeles.