Diller v. Malone: IAC Fends Off Shareholder Advances in Court

In a filing with the Delaware Chancery Court yesterday, IAC/InterActiveCorp. asked that legal action by shareholder Liberty Media be dismissed, arguing that its attempt to remove chairman and CEO Barry Diller and other board directors could "cripple" the company and threaten its quarterly earnings report.

IAC accused Liberty of trying to create "management and market chaos" to disrupt its operations.

According to various press reports, the IAC move is the latest in an increasingly bitter showdown between the company and longtime investor Liberty, controlled by chairman John Malone. He and Liberty CEO Greg Maffei have been unhappy with IAC's stock price and in recent months have talked with Diller about possibly restructuring the company or Liberty's stake in it.

A Delaware Chancery judge is expected to hear a motion today from Liberty, which owns a 62 percent voting stake in IAC, that would prevent the IAC board from taking any actions outside the course of ordinary business while the court decides on a number of other measures, including whether Liberty can lawfully replace Diller and other board members, according to The Wall Street Journal.

Among other things, the two sides had looked at swapping part of Liberty's stake for Home Shopping Network (HSN) or other IAC assets.

Liberty cited concerns that a planned split of IAC into five companies and a proposed new share structure for the core business would dilute its say in company affairs.

John Coffee, director of the Center on corporate governance at Columbia Law School, says Liberty has "a steeply uphill battle" in trying to prove that Diller violated his agreement by expressing his intention to vote in favor of a spinout. "My view is that the defendants have a strong argument that the proxy hasn't been violated, because no vote has been taken," Coffee told the Journal.