Judge Rules in Favor of IAC's Diller

SAN FRANCISCO - A judge on Friday ruled against Liberty Media's(LINTA Quote) efforts to block IAC/InterActive Corp.'s(IACI Quote) chief executive from spinning the Internet conglomerate into five separate companies.

Liberty Media's CEO John Malone had tried to remove Barry Diller as head of IAC, along with six of the company's directors, among them Diller's wife, fashion designer Diane Von Furstenberg. Malone also contested Diller's plan to split IAC into five parts, which he claimed would dilute Liberty Media's voting power in IAC.

Liberty Media currently owns 30% of IAC's shares and about 62% of its voting control through a second class of super-voting shares. Diller, however, controls the voting rights of Liberty's IAC shares through a proxy agreement and proposes to give each spin-off a single-tier voting structure, whereby each share of common stock would have equal voting power.

After a five-day trial in Delaware Chancery Court in Wilmington, Judge Stephen Lamb ruled that "Liberty has failed to demonstrate that Diller has breached or threatened to breach any contractual duty he owes to Liberty. In particular, the court rejects Liberty's claim that the proposed single-tier spin-off gives rise to any right of consent on Liberty's part."

He added that "Liberty's various other contract-based objections to the proposed spin-off lack merit and should be dismissed on the basis of the record that now exists."

Lamb stopped short of issuing a ruling on Liberty Media's claims that IAC failed to uphold its fiduciary duties, maintaining that it would be premature.

"The simple, inescapable fact is that the IAC directors have not yet finally authorized the spin-off and have not even considered many of the essential terms of the transaction, including the voting structure of the (spin-offs)," Lamb wrote.

He added that "Liberty's challenge to the ultimate decision of the IAC board to authorize the spin-off will, of course, depend on the decisions actually made and the record of the directors' deliberations."

Lamb left open the possibility of another ruling "on a more complete record, if the need arises."

Shares of IAC had been suffering a fall because of the uncertainty surrounding the lawsuit. But Friday's ruling helped put investors' minds at ease. The company's stock price got a boost in afternoon trading, climbing 8.3%, or $1.70, to $22.19.

Diller proposed the break-up in November on the assertion that each of IAC's five units had achieved enough scale that they could operate on their own instead of being part of an unwieldy conglomerate.

Under his plan, IAC would spin off four of its units: LendingTree, the Home Shopping Network, Ticketmaster and Interval. The remaining businesses will be folded into a new IAC division, which would include Match.com, Ask.com and Evite and Citysearch.