By Michele Gershberg
WILMINGTON, Del., March 11 Liberty Media Chief
Executive Greg Maffei on Tuesday said he and Chairman John
Malone disagreed for more than a year about whether they could
wrest control of IAC/InterActiveCorp from mogul Barry Diller.
But that didn't stop Maffei from making his case to Wall
Street in private discussions, saying Diller's right to vote
Liberty's controlling 62 percent stake was not ironclad, Maffei
told a Delaware court. Liberty owns about 30 percent of IAC,
but has voting control through a class of super-voting shares.
The proxy agreement between Liberty and IAC (IACI.O)
Chairman and CEO Diller is at the heart of a trial between the
companies in Delaware Chancery Court. They are fighting over
Diller's proposal to reconfigure IAC by spinning off four of
its main units in a way that would dilute Liberty's voting
power over the businesses.
"When asked the question of whether that proxy was
irrevocable or not, I tried to maintain the position that there
were arguments under which that proxy could be revoked," Maffei
told the court under questioning from IAC's lawyer, Marc
Wolinsky of Wachtell, Lipton, Rosen & Katz.
Maffei said he had maintained that position in discussions
with analysts and investors, though the company did not make
the idea public in a regulatory filing.
Maffei also acknowledged that Malone did not agree with the
idea, which stemmed from a review of the original control
agreements forged between Liberty's chairman and Diller.
He was called to the stand by IAC, which has stressed a
history of personal disagreement between Maffei and Diller as a
key factor in the unraveling ties with Liberty. Liberty has
argued that it aims to preserve the value of its IAC holding
after years of seeing the shares lag the Nasdaq.
Maffei also had a disagreement over options he held in
Expedia (EXPE.O), the online travel company he helped sell to
IAC. It was later spun off.
After Maffei was named CEO of Liberty in late 2005, he
informed the board that he could still come into legal conflict
with IAC and Diller over the options that had at the time been
worth close to $28 million.
"It would be difficult to sue those companies (IAC and
Expedia) in this condition, so I've let that potential claim
remain out there and I've not yet acted on that," Maffei said.
Diller has asked the court to uphold his right to vote
Liberty's shares, while Liberty has accused Diller of violating
their proxy agreement and demanded his ouster, along with six
other members of the IAC board.
Liberty lawyers had raised the idea more than a year ago
that Diller's control of the voting stake stemmed not from the
proxy but from his position as sole director of a group of
companies named BDTV, through which Liberty owns IAC shares.
Malone told the court on Monday he had discussed the view
with Diller in May 2006. Malone described that line of thinking
as "brain damage" because it did not reflect the original deal
between the two men or match the way he had presented it to the
public for some 10 years.
"I remember he was not particularly supportive of the
argument," Maffei said. "Because Dr. Malone wasn't really
willing to support it, we never used the threat until such time
as he (Diller) sued us."
Liberty invoked the BDTV argument when the two sides sued
each other in January. It named Maffei to replace Diller as
sole director of the companies but dropped the claim last
After more than a year of inconclusive talks with Liberty
on an asset swap centered on IAC's shopping channel HSN, Diller
proposed last November that IAC split off four of its
businesses and focus on faster-growing Internet media and
Malone initially backed the idea, but opposed it when
Diller said the spinoffs should have a single-tier share
structure to make them attractive to investors. The plan would
cut Liberty's control over them by nearly half.
Diller is due to testify later in the week. Vice Chancellor
Stephen Lamb is expected to issue a ruling on the case within
two to three weeks of the end of the trial.
Some analysts expect that even after the trial, the two
sides will agree to swap HSN, and possibly one other unit, to
Liberty in return for Liberty's stake in IAC. The other
proposed IAC spinoffs are the LendingTree mortgage site,
Ticketmaster box office service and Interval time-share
IAC shares have fallen 21 percent since the current
lawsuits were filed. They closed 2.8 percent higher at $19.55
on Tuesday. Liberty Media's Liberty Interactive shares rose 5.5
percent to $15.44.
(Editing by Gary Hill)