Highlights Of Delaware Ruling Maintaining Diller’s Rights To Vote Liberty’s IAC Stock

Delaware Chancery Court Judge Stephen Lamb delivered a 79-page memorandum opinion and order late Friday afternoon in favor of Barry Diller and IAC (NSDQ: IACI) in a complex legal dispute with John Malone and Liberty Media (NSDQ: LINTA). The ultimate finding that “in favor of the defendants and against the plaintiffs and that action is DISMISSED WITH PREJUDICE. In addition, in the Diller Action and the Liberty Action, judgment will be entered finally determining that Liberty does not have a right to consent to the proposed spin-off…” Translation: in this bitter divorce, Diller gets custody of IAC — unless Liberty finds something valid to quarrel with after the spin-off plans are set. The decision covers three consolidated cases heard together in a five-day expedited trial March 10-14. Some excerpts from the ruling after the jump.

Liberty fails to make a case: “For the reasons discussed in this opinion, the court concludes that Liberty has failed to demonstrate that Diller has breached or threatened to breach any contractual duty he owes to Liberty. In particular, the court rejects Liberty’s claim that the proposed single-tier spin-off gives rise to any right of consent on Liberty’s part. It follows that the proxy remains in effect, with the consequence that the Liberty parties who purported to execute written consents on January 28, 2008, lacked the power to vote Liberty’s shares in IAC. Thus, the court will enter judgment in the section 225 action in favor of the defendants. The court also concludes that Liberty’s various other contract-based objections to the proposed spin-off lack merit and should be dismissed on the basis of the record that now exists.

“Finally, the court concludes it is premature to consider the claims relating to the fiduciary duties of the IAC board of directors. The simple, inescapable fact is that the IAC directors have not yet finally authorized the spin-off and have not even considered many of the essential terms of that transaction, including the voting structure of the spincos. While the court agrees with IAC that a single-tier voting structure for the spincos would not violate the governance agreements or any blackletter rule of Delaware law, Liberty’s challenge to the ultimate decision of the IAC board to authorize the spin-off will, of course, depend on the decisions actually made and the record of the directors’ deliberations. Because there is no ripe dispute, the court declines to make any advisory rulings on this subject. Rather, the court will retain jurisdiction over these claims for later resolution on a more complete record, if the need arises.”

The relationship deteriorates: “From 2005 on, the IAC-Liberty relationship deteriorated drastically. IAC’s stock price fell in 2005. Expedia’s stock price dropped between its spin-off as an independent public company and year end. By late 2005, Liberty also made a change in its investment strategy

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