Liberty Media-IAC: Diller On The Stand: Part I

imageNot trying for a transcript here by any means .. Barry Diller is on the stand in Delaware Chancery Court under direct examination following the lunch recess in the Liberty Media-IAC (NSDQ: IACI) trial and we’re watching via Courtroom Live. More after the jump

— He was asked about the discussions with Liberty Media (NSDQ: LINTA) over the way veto power would be applied back when the Vivendi (EPA: VIV) deal was being unwound. Liberty wanted veto power over Diller’s right if IAC was in financial distress. Diller said he agreed because he couldn’t imagine being in that situation: “I’m fairly famous as someone that does not like excessive leverage.”

— Diller is explaining how the single-tier voting structure for the proposed spin-offs came about, to aid the companies being spun off.

Compensation: The money that got such play earlier this week primarily was from selling options that Liberty granted in the version of the company preceding IAC. First three years took no salary; eventually worked up to $900k from IAC and Expedia combined. He said his annual compensation has been $3 million — and asked by counsel, agreed that it includes the planes, etc, brought up by Liberty on the first day of the trial.

— Diller denies that he was trying to punish John Malone or anyone at Liberty for an Oct. 27 WSJ story with negative comments about him. He said his holdings will be 3 percent compared to Liberty’s 30 percent. He brushed off the idea that he’s doing this to protect his legacy. He also said that discussions with Liberty over stock swaps over the past two years never got a value worth presenting to the IAC board.

Motivation: (Joseph picking up the feed here) Under direct examination, Diller is being tossed some softballs aimed at demonstrating that his desire to split IAC into five is purely motivated by a desire to increase shareholder value, and has nothing to do with his own personal ambition. He denied that he personally is facing financial issues or that this move is somehow about his legacy. With respect to his role in the other four spincos (not the new IAC), he denied that he’d have any role in managing them, save, possibly one, in an effort to help it find some outside investment (note: this is probably Lending Tree, which would be the most in need of some outside cash). On the matter of various equity swaps that might have untangled the two sides in the past, Liberty’s offers never satisfied Diller’s view of what was adequate for shareholders.

Cross examination: Liberty’s lawyer, Kevin Abrams, is grilling him and the questions are considerably tougher. He asked Diller whether he could say yesterday’s closing value of IAC. Diller said no, but then vacillated between either somewhere above $20 or above $19 (Note: the stock closed yesterday at $19.46). He was then asked whether he could say what the estimated market value of Liberty’s IAC holdings was. Diller didn’t try to make a guess on that. This is now sounding very much like a student called on in class who didn’t do the reading. Diller couldn’t answer what IAC was worth five years ago, though he tried to wiggle out by saying that IAC five years ago included Expedia, so you couldn’t make an apples-to-apples with today. Liberty’s lawyer, at this point, isn’t really arguing the law or the nature of the two companies’ agreement — he’s just trying to make Diller look like a bad manager. Question: Are you happy with market share of Diller knew that market share was around five percent. He didn’t say they were upset, but that “we’re not where we would like to be.”

Wall St. view: The lawyer is now trying to establish that Diller is out of touch with the view of Wall St., asking him if he’s aware of analyst reports rating IAC a buy if Liberty prevails in this case. Diller claims to read analyst reports all the time, but that he hasn’t seen any saying that (note: we’ve seen at least one).

Peer group: A bit of a dead end for Liberty’s lawyer here: He’s trying to establish that IAC has lagged its internet peers, but nobody’s arguing otherwise. On the matter of comparability, Diller notes that there are no obvious peers, which is a key reason for the spin. Post-spin IAC could be compared to the internet pure plays, but now they can’t.

Personal The Liberty lawyer tried to lead Diller into acknowledging that Liberty CEO Greg Maffei, by going after IAC’s performance, is all about business with no personal motivation. After a long-winded question, Diller answered: “Just proceed”, which drew a laugh from the members of the court. When asked again whether Maffei’s actions are personal, Diller said you’d have to ask him. As they discuss this issue more, it’s clear that Diller thinks that some of this is personal, noting that attacks in the press have been asymmetrical.

Liberty’s role in the spincos: A fundamental question here: What kind of control will Liberty have in the various spincos? The lawyer is suggesting that Diller is abdicating his responsibilities to Liberty by not taking a role in the spincos, while not giving his power back to Liberty. On the matter of whether Liberty should have board representation, Diller suggests that the matter hasn’t really been settled. After a roundabout discussion on various protections Diller wants to provide the management, Diller made it clear: He thinks Liberty has been unduly negative on the various operating units, and he feels that these managers need protections from Liberty.

Diller-Malone: On the matter of the personal relationship between Diller and Malone, Diller had to admit that this past year was the roughest in their 15-year relationship. The worst day in that year: pretty clearly October 27, 2007, the day of that fateful WSJ article — the MacGuffin of this whole courtroom thriller — in which Malone basically trashed Diller’s performance in an interview.