CEO Barry Diller credit for being bold.
On Monday, the conglomerate said it plans to spin off four of its major units to form five separate businesses. The remaining IAC will hold onto a portfolio of 30 Internet businesses, which include high-profile names like search engine Ask.com, local information site Citysearch and personals site Match.com.
IAC will spin off its HSN shopping unit, its Ticketmaster ticketing service, its Interval vacation and time-sharing business and its LendingTree online mortgage service.
The move marks a dramatic departure of strategy for IAC, which has long maintained that having so many retail and consumer-oriented businesses under one roof -- particularly with an Internet focus -- was an advantage. Ticketmaster could help feed the Ask search engine with unique information users couldn't find on other engines, IAC had argued, while HSN would position the company to take advantage of the convergence of Internet and television.
But Diller conceded that IAC's sprawling structure was doing more harm than good at this point. "It's very confusing to every constituency," he said at a press conference at IAC's headquarters in New York on Monday. "It confuses the markets. We've been undervalued since the very beginning."
Still, while the drawbacks of the conglomerate model have long been with the company, the time was now to do away with it, given the pick-up in its Internet businesses. IAC had pursued a strategy of using the cash from its more mature businesses to fuel its faster Internet business.
But the Internet businesses are ready to sustain themselves, Diller argued.
IAC's Internet businesses do show indications of amassing an impressive amount of firepower. During the third quarter, revenue in the company's media and advertising unit grew 40% year over year to $189.8 million. At the same time, operating income before amortization grew 74% to $27.6 million.
But taking a big-picture view of the overall business' future as the company's stock has sagged -- IAC was off about 20% for the year before Monday -- seemed to play at least as large in Diller's mind as did the strength of the Internet division.
The plan also comes at a time when things finally seem to be stabilizing at the company's Home Shopping Network, the retailing unit that accounts for nearly half of IAC's revenue. It grew revenue at 2% year over year during the third quarter.
However, other divisions will be facing a tougher road. The company's LendingTree mortgage finance Web site will probably face the biggest hurdle because of the housing crisis. In the third quarter, revenue at the division dropped 41% to $63 million.
But Diller maintained that the long-term outlook for LendingTree remained strong as it would survive and take market share during the downturn.
Shares of IAC closed Monday up $2.22, or 7.5%, to $31.84.