IAC: Liberty has 'gone off deep end'

Bid to oust Diller in wake of plan to split firm in 5

"Preposterous" and "a desperate sideshow." That is how Barry Diller's Internet company IAC/ InterActiveCorp on Tuesday characterized an attempt by big investor Liberty Media to take a majority of board seats and oust Diller. His role as chairman and CEO was seen as reasserted thanks to the rebuke.

The Liberty push, which follows months of fruitless discussions between Diller and Liberty chairman John Malone along with CEO Greg Maffei, became public late Monday. The moguls have been haggling about what should happen with Liberty's large stake in IAC following a split into five companies as proposed by Diller.

"Liberty does not control IAC," IAC said. "Barry Diller continues to be the chairman and CEO of IAC; the board of directors of IAC elected at last summer's stockholders meeting continues to manage the affairs of the company, and IAC management continues to work in the best interest of its stockholders."

Diller recommended this month to IAC's board that in the split all shareholders should receive the same class of stock in the resulting companies, while IAC continue with a dual-class stock structure. Liberty believes this would dilute its position.

Under the dual structure, Liberty has a 30% stake in IAC but 62% of the voting power, with Diller having the right to vote the Liberty holding.

IAC and Diller ended up filing legal action to affirm his right to vote Liberty's stake in favor of the proposed structure.

"Despite this well-intentioned effort at peaceful resolution, Liberty has now gone off the deep end, not only alleging that Mr. Diller has somehow materially breached his proxy by which he has voted Liberty's IAC shares for over 12 years, but also purporting to unilaterally throw out the incumbent directors and installing its own slate," IAC said. "The contention that Liberty is now in control of the company is inexplicable."

Liberty executives have tried to negotiate a future structure for the IAC assets that they are comfortable with. At first there was talk about a possible swap of part of Liberty's stake for full control of IAC's home shopping network HSN.

With its lawsuit, Liberty is trying to remove Diller's wife Dianne Von Furstenberg, Warner Music Group CEO Edgar Bronfman Jr. and private-equity guru Steven Rattner from the IAC board. Liberty also moved to remove Diller as the sole director of BDTV, which controls key Liberty voting rights.

IAC shares rose 1.9% on Tuesday to $25.65.