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Liberty Media's Malone files for ouster of Diller from IAC as dispute rages on

Liberty Media Corp's John Malone, a longtime business partner of Barry Diller, took action to oust Diller from the board of the IAC/InterActiveCorp Web conglomerate.

Monday's move is the latest in dueling lawsuits the two sides have filed in Delaware courts, following IAC's announcement that it would break into five separate publicly traded companies. Liberty says that would rob the media holding firm of its shareholder voting power.

Malone's lawyers sought the removal of seven IAC board members in all, including Diller, his wife the designer Dianne Von Furstenberg, Edgar Bronfman Jr and Steven Rattner. Liberty proposes they be replaced by three people it named in the court filing.

Three other IAC board members were not named as targets: a former Coca-Cola Co executive, Donald Keough, and retired Army General Norman Schwarzkopf.

Diller has long controlled Liberty Media's voting rights in board matters, per a proxy agreement, but Liberty lawyers argue those rights were revoked when Diller decided to pursue the spin-offs without Liberty's consent. Malone's lawyers claim such consent is required under the agreement that gives Diller the rights in the first place.

Liberty also said in court papers it would remove Diller as a director of an entity called BDTV, which it argues would take away his power to vote its shares, which constitute roughly half of Liberty's IAC voting power. About 99 percent of BDTV is owned by Liberty subsidiaries.

An IAC spokeswoman said the company had no comment as of late Monday, although Diller gave a statement to the Wall Street Journal that calls Liberty "insane."

Malone and Diller joined up in the mid-1990s and have worked together as Diller built IAC's business. As IAC shares suffered in recent years, the two began to show their differences.

Malone is a cable pioneer and has been chairman of Liberty Media since 1990. A trained engineer, he started his career at Bell Labs/AT&T and rose to become the chief executive of cable company TCI.

Diller started in the mail room at the William Morris Agency after dropping out of UCLA. He is widely known for creating the movie of the week at ABC and creating the Fox Broadcasting Co.

In November, Diller announced plans for IAC to spin off its HSN home shopping network, Ticketmaster ticketing service, Interval time-share business and LendingTree mortgage referral units.

But in IAC board meetings earlier this month, Malone challenged the breakup plan.

Liberty Media owns about 23 percent of IAC common stock, which is entitled to one vote per share, and all of its outstanding Class B common stock, which carries 10 votes per share. The company thus owns about 30 percent of IAC equity but 62 percent of the voting power of its outstanding stock.

Under the breakup plan approved by IAC directors, each of the spin-off companies would have a single-tier voting structure, with each share of common stock having equal voting power. Liberty's voting power thus would shrink to about 30 percent in the spin-off companies.

Monday's lawsuit to oust Diller is the third lawsuit to be filed in the Malone-Diller fight.
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