IAC blasts Liberty Media effort to remove Diller

NEW YORK (Reuters) - IAC/InterActiveCorp (IACI.O) on Tuesday blasted its controlling shareholder Liberty Media Corp (LINTA.O) (LCAPA.O) for asking a court to remove IAC Chairman Barry Diller, calling the move "preposterous" and a "desperate side show" to a proposed restructuring.

IAC also staked out its position on who really wields control at the Internet conglomerate, despite Liberty's nearly 62 percent control of the company's voting shares.

"Liberty does not control IAC," the company said in a statement. "Barry Diller continues to be the chairman and CEO of IAC ... and IAC management continues to work in the best interest of its stockholders" on a plan to spin off four of the company's largest businesses.

Shares in IAC rose 51 cents or 2 percent to $25.68. Liberty Interactive Class A shares rose 21 cents or 1.4 percent to $15.63.

Liberty, controlled by cable mogul John Malone, raised the stakes on Monday in an increasingly bitter dispute over the spin-off plan, asking a Delaware court to remove Diller and six close associates from the IAC board.

Liberty also asked the court to strip Diller of his power to vote Liberty's shares regarding IAC, part of a long-standing agreement between the two that dates back to IAC's formation.

"Liberty has now gone off the deep end," IAC said in a statement, citing Diller's history of voting Liberty shares for more than 12 years.

Despite the rising tide of invective, analysts say the two sides are really arguing over the value of the IAC units under the spin-off, including the HSN cable network, Ticketmaster box office service, Interval International time-share exchange and LendingTree mortgage service.

"What's puzzling to us is how they got into this dilemma in the first place," said Sanford C. Bernstein analyst Jeffrey Lindsay. "We think there may be a possibility for a compromise in exchange for some value, and the Liberty side can be persuaded to give up their super-voting rights."

That could include offering Liberty a larger stake in HSN, which it has long considered as an acquisition target to combine with its QVC shopping network, and possibly another unit like Ticketmaster, analysts said.

"It's probably bad for IAC if the spin-out is held up, and that's what will happen (if the dispute continues)," said Lindsay. "We think the value exchange will happen."

Outside investors watching the fireworks might be better of staying out of IAC for now, but the core holding company will be attractive for its focus on Internet media businesses and its relative size once the uncertainty over the spin-offs is cleared up, Lindsay said.

Liberty and IAC went to the courts last week over a dispute on how to structure the four IAC spin-offs. Liberty holds the majority of voting shares at IAC, though it only has a 30 percent stake in the company, under a dual-tier share system.

Diller recommended to the board that the spun-off entities operate under a single-tier share system to make them more attractive to outside investors, a move that would dilute Liberty's control of IAC's businesses.

Liberty wants the new entities to retain a dual-class share structure and has sought legal intervention to prevent Diller from voting its shares against its wishes.

(Reporting by Michele Gershberg and Tiffany Wu, editing by Gerald E. McCormick and Lisa Von Ahn)