UPDATE 3-IAC's Diller wins court battle with Liberty

(Updates with Liberty's response)

By Michele Gershberg

NEW YORK, March 28 (Reuters) - IAC/InterActiveCorp (IACI.O: Quote, Profile, Research) chief Barry Diller on Friday won a bitter legal dispute with Liberty Media Corp's John Malone, paving the way for him to proceed with efforts to spin off four of IAC's largest units.

Shares in Internet conglomerate IAC surged more than 8 percent on the Delaware Chancery Court ruling, which blocked Liberty's effort to oust Diller, the chairman and chief executive, and six other IAC board members.

The decision followed a week-long court battle that exposed a deteriorating friendship between the two billionaire media moguls after more than a decade of business dealings.

It also opened the door for further disputes between Malone and Diller, who must now return to the table and either work through the contentious spin-off or agree to swap IAC assets for Liberty's stake in the company.

"I wish this hadn't happened, but it did," Diller said in a statement. "Now it's over and we can all get on with our work and lives."

Liberty and IAC sued each other in January over Diller's plan to structure the spun-off units with a single-class share structure that would halve Liberty's voting control over the businesses as separate entities.

Liberty (LMDIA.O: Quote, Profile, Research)(LINTA.O: Quote, Profile, Research) owns about 30 percent of IAC, but retains 62 percent control through a class of super-voting shares. Yet Diller runs IAC through a long-standing proxy agreement that gives him the sole right to vote those shares.