Court to rule in late March on IAC's Diller

WILMINGTON, Delaware (Reuters) - A court ruling on whether IAC/InterActiveCorp chief Barry Diller breached his proxy agreement with controlling shareholder Liberty Media Corp and can be removed from office is expected in late March, lawyers involved in the case said on Friday.

Delaware Chancery Court Judge Stephen Lamb is expected to issue the ruling by March 28 after the two sides present briefs on the matter on March 21.

In the balance is Diller's job as chairman and chief executive as well as his proposal to spin off four of IAC's largest businesses -- a move originally applauded by the company's outside investors but later opposed by Liberty.

It was not immediately clear when the fate of that plan would be determined. Liberty might choose to proceed with the spin-offs if Diller were ousted and it took control of the Internet conglomerate.

If the Delaware Chancery Court upheld Diller's proxy in its initial decision, it would also have to rule on whether the plan violated his duty to shareholders or could proceed.

Shares in IAC rose more than 3 percent as news of the expected ruling boosted hopes for a resolution to the dispute.

"The correct way for investors to play this ... is to basically do it through options. For the minute it's not clear" what the outcome will be, said Jeffrey Lindsay, an analyst with Sanford C. Bernstein.

"Diller did have a clear plan," he said. "If it fell under Liberty's control, we'd want to see evidence they had a good plan."

The two sides sued each other in late January after Diller proposed a control structure for the spin-offs that would dilute Liberty's 62 percent hold over the businesses as separate entities. Liberty owns about 30 percent of IAC but controls it through a second tier of super-voting shares.

Their five-day trial this week pitted the former television and film executive against his friend and business partner of many years, Liberty Chairman John Malone.

It has also highlighted tensions between Diller and Liberty Chief Executive Officer Greg Maffei, as Maffei repeatedly questioned Diller's hold on IAC and the performance of its businesses.

DILLER'S PROXY

Diller runs IAC through a long-standing proxy to vote Liberty's controlling stake. Liberty maintains he violated the agreement by threatening to vote its shares against its wishes and whittle its control over IAC.

If the court agreed with Liberty, the proxy would be terminated. Liberty has asked for Diller's ouster and for the removal of six other board members, including his wife, Diane von Furstenberg.

In his testimony on Friday, Diller described that proxy as "the most important thing" in his role in the business and said he had understood the agreement was being threatened by Maffei. Diller said he raised the issue with Malone in what he described as a "very difficult" meeting in May 2006.

"I could have used any term -- nuclear, transcendental -- anything you would like, I could have used, relative to what I understood was the deal we had from the moment we shook hands until today," Diller said.

He told the court that the plan was in the best interest of all IAC shareholders and that the control structure of the spun-off companies was meant to allow them to manage their businesses or consider major transactions without the burden of a shareholder with super-voting control.

After nearly five hours of testimony over two days, in which he at times sparred with Liberty lawyer Kevin Abrams, Diller said he "liked the cut and thrust" of appearing on the stand.

"It reinforced my belief that we are on the side of the angels," he said at the end of the trial.

IAC shares were up 63 cents or 3.1 percent to $20.81 in late afternoon trade. The shares have lost more than 16 percent of their value since the legal dispute began.

(Reporting by Michele Gershberg, editing by Leslie Gevirtz and Gerald E. McCormick)