IAC 'starting again' with spinoff

Shares rocket on news of firm's split into five public companies

Shares of Barry Diller's IAC/InterActiveCorp jumped 7.5% on Monday after the company said it will separate into five publicly traded companies to boost an ailing stock price tied to the firm's conglomerate feel.

Diller will remain as chairman and CEO of IAC, which will operate as a more media-and advertising-focused Web company. Thirty brands will remain under the IAC banner, including Ask.com, Citysearch, Match.com, virtual world Zwinky, CollegeHumor and the recently acquired Garage Games.

HSN, Ticketmaster, Lending Tree and Interval International will comprise the other separate companies. The move reminded observers of the spinoff of Expedia a couple of years ago.

Observers also immediately suggested that John Malone, whose Liberty Media is a major shareholder in IAC, was a driving force behind the breakup. Last month, a Wall Street Journal article quoted Malone as saying that he was less than impressed with Diller and IAC of late. Also, financial engineering — including company splits and tracking stocks — is one of Malone's trademarks.

Diller shrugged off the idea that Malone drove the changes, saying Monday that the mogul voted on the deal and approved it midday Friday along with the rest of the board members. He said that Liberty will retain its 20% stake in IAC and that arrangements with the other companies have yet to be worked out.

Diller added Monday that Ask signed a new sponsored-search deal with Google for the next five years, a transaction valued at about $3.5 billion for IAC. Ask's current deal with Google was set to expire at year's end.

Diller said one of the biggest reasons for the split was that with 60 brands operating in 12 different business sectors, IAC's structure was "confusing" to "every constituency" and to the markets. He said this led to "undervalued" stock prices and a company in which something was "always in trouble."

"We've been undervalued since the beginning," Diller said. "If we kept doing what we're doing, it would settle itself down. But because we're a young company, I don't think that's the best thing to do with my time and with my colleagues' time."

Diller said that with struggling businesses unrelated to media and advertising, like Lending Tree, out of the mix, observers now might pay attention to the "new" IAC's "strong" growth and "pretty good" revenue numbers. Diller said that it feels to him like IAC is "starting again," a "very invigorating" proposition.

"The remaining IAC will be a company of good size, good earnings, good cash flow, a good deal of cash; the way I have always liked it," Diller said.

With online ad revenue continuing to increase, Diller said it is "self-evident" that the move made financial sense. The deal between Google and Ask also was a large reason for the timing of the deal.

"I wouldn't say we wouldn't have done the spinoff without it," Diller said, "but it was a key component of our being able to do it."

Diller, however, stressed that the spun-off companies have bright prospects for the future as well. He said HSN is beginning to turn around and that Ticketmaster "plays a leadership role" in its field.

Diller said IAC went through a similar process more than two years ago when it spun off Expedia. He said that both companies are in better shape now because of the separation.

Diller said that each new company will have separate boards and leadership structures and that he will be involved with the boards of one or "maybe two" of the four new entities. The transaction is expected to be completed by second- or third-quarter 2008.

Diller also said that between now and the time the deal closes, IAC is open to discussions about possible sales or other moves of the soon-to-be spun-off properties.

"Anything can happen between the announcement and going out as five separately traded companies," Diller said. "We're up for anybody talking to us about anything. But we won't put ourselves in position to damage the after-spin possibilities of the companies."

Diller said he began thinking of the idea of the spinoff during the summer and that, after discussions with others at the company, it became clear that the idea made sense.

Under terms of the spinoff, IAC will retain substantially all of the company's cash, and shareholders of the company will own 100% equity in all five companies.
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