In Struggle For Control Of IAC, Malone Criticizes Pay Given To Diller

John Malone, the billionaire chairman of Liberty Media, criticized IAC/InterActiveCorp chairman and chief executive Barry Diller yesterday for reaping more than $1 billion in compensation as the Internet and media company lost value.

Malone, whose company owns shares giving him more than 60 percent of IAC’s voting rights, testified at the beginning of a trial over control of IAC. He is asking Delaware Chancery Court Judge Stephen Lamb to allow him to replace members of the IAC board. He said that IAC stock has been down 20 percent since 2000.

“You can play all kinds of games with the numbers, but since 2000, they have lagged seriously behind the Nasdaq and other indexes,” Malone said. Some of Diller’s compensation had “raised eyebrows,” he said.

Diller is planning to split New York-based IAC into five parts, with a new, single-vote-per-share structure. Malone wants a two-tier structure to maintain his control. Liberty, of Englewood, Colo., holds 30 percent of IAC’s shares and about 62 percent of its voting power. Diller also controls the voting rights of Liberty’s IAC shares through a proxy agreement, which Malone is challenging.

Liberty contends the single-tier structure would unfairly dilute its control of the spinoffs, that the plan requires Liberty’s consent, and that Diller is using the proposal to preserve his legacy at the company.

“Anything that would undermine his confidence that he had the voting power without interference would greatly bother Mr. Diller,” Malone testified. “I believe he believed that it was his company. He frequently refers to it as his business.”

IAC claims that Liberty’s purported removal of directors is invalid, that Diller may vote Liberty’s shares of IAC without Liberty’s permission and that the spinoff “effected as a dividend must be structured on a one-tier basis.”

Diller and Malone have worked together since Diller’s 1995 investment in Malone’s Silver King Communications. Malone testified that he holds “no ill will” for Diller despite the litigation.

“We both have hurt ourselves a little bit” by having the dispute end up in court, Malone told Lamb.

The relationship between the two companies soured after Liberty hired Greg Maffei as president and chief executive in early 2006, Malone said.

Malone said he knew Maffei had clashed with Diller during IAC’s 2001 bid to buy Microsoft’s majority interest in online travel agency Expedia, where Maffei was chairman. Malone described a conversation with Diller in which the IAC chief called Maffei “a poor choice.”

Shortly after Maffei arrived, Liberty began looking for ways to circumvent the agreement and gain control of IAC, Malone testified.

“Mr. Maffei believed it was in the interest of Liberty to separate our interest from the interests of IAC,” Malone said. “Mr. Maffei can be pugilistic where these issues are concerned.”

Their relationship continued to deteriorate after a Jan. 16 IAC board meeting where Diller proposed the single-vote structure for the spinoffs.

The companies that would be spun off include home shopping network HSN, ticket broker Ticketmaster, time-share manager Interval International, online mortgage firm LendingTree and IAC, which would include the Ask.com search engine.

Diller is a director of The Washington Post Co.

– By Sophia Pearson and Jef Feeley

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