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REFILE-Diller still open to HSN deal before IAC spin-offs

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By Michele Gershberg

NEW YORK, Nov 5 (Reutetrs) - As recently as last month, Barry Diller had contemplated unloading the HSN cable shopping network in a deal with cable veteran John Malone, but balked at what he thought was too low an offer.

Now HSN is one of four business units Diller plans to spin out as traded entities in unraveling his IAC/InterActiveCorp IACI.O conglomerate to focus on Web media and advertising.

In an interview with Reuters shortly after the news was announced on Monday, Diller said he was still open to a deal on HSN, but doubted a transaction was in store before the spinoffs were completed in the second or third quarter of 2008.

“I can’t say it’s impossible. But I’m looking forward to HSN being an independent company,” Diller said at his New York headquarters. “I think that’s a very interesting operation.”

Malone's Liberty Media Corp LCAPA.O is an IAC shareholder and owns HSN's larger rival, cable and online shopping network QVC. The two sides were considering some way of swapping all or part of the assets to bring HSN under the purview of QVC.

It was not clear how Liberty’s voting shares in IAC, which are now controlled by Diller, would carry over to the spun-off companies. Diller said he expected to remain chairman of one or two of the units in addition to being chairman and CEO of IAC.

“It wasn’t practical,” Diller said of the terms he last discussed with Malone early in the third quarter. “At the time, HSN was in the trough of its negative performance,” he added. “We would have had to admit to ourselves that our belief they were soon going to turn (around) was unfounded.”

He declined to discuss the terms. In the 12 months through the end of September, IAC’s retailing unit, including HSN, reported nearly $3.2 billion in revenue.

IAC said last week HSN had 5 percent third-quarter revenue growth and expected further increases in the fourth quarter, suggesting its long-awaited revival had finally taken place.

On Monday, IAC shares rose as much as 13 percent on the spin-off news, and analysts called it a well-timed move.

“A lot of positive sentiment on the stock had hinged on the possibility of a deal between Liberty Media and InterActiveCorp for HSN,” said Sanford C. Bernstein analyst Jeffrey Lindsay.

“IAC has taken the initiative and their future success isn’t necessarily tied to accomplishing a deal,” he said. “It doesn’t matter if a deal happens or not, they are likely to get the company moving.”

INDIVIDUAL DESTINIES

Diller said the idea of splitting up IAC came in the summer but took hold in early September. IAC’s board, of which Malone is a member, was formally brought into the discussion about four weeks ago and gave final approval for the plan on Friday.

In addition to HSN, IAC is spinning off its LendingTree mortgage business, its Ticketmaster box office service and its Interval vacation-booking service.

As Diller describes it, the units will now have the freedom to build their own “destinies,” whether as independent entities, in partnerships or even merged with other companies.

Each unit will have its own board and chairman after the spin-off, but Diller was intentionally vague on what the ownership structure of each company would look like.

Diller acknowledged the frustrations Liberty and Malone had expressed over the untapped value in IAC, whose fast-growing media and advertising businesses have had results clouded in past quarters by weakness at HSN, LendingTree or Ticketmaster.

IAC shares are down nearly 15 percent this year, compared with a 6 percent rise on the Standard & Poor’s 500 Index.

“I’m only sympathetic to the issues they have on not getting credit for billions of dollars of assets,” Diller said of Malone and Liberty. “My sole job is IAC.”

(Editing by Braden Reddall)

((Reuters Messaging: michele.gershberg.reuters.com@reuters.net; E-mail: michele.gershberg@reuters.com; +1-646-223-6185)) Keywords: IAC/DILLER

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