Barry Diller divides InterActiveCorp

Multimedia empire split up into five companies

By BEN FRITZ

Diller

Barry Diller is breaking up his multimedia empire.

In a surprising move, the mogul announced on Monday that he's dividing InterActiveCorp into five publicly traded companies. Most Internet assets will stay within IAC, while Home Shopping Network, Ticketmaster, LendingTree and the conglom's travel assets will all form new companies.

In a conference call and presentation, Diller admitted Wall Street has never been able to wrap its collective head around IAC's diverse set of assets.

"It's confusing to every constituency. It's confusing certainly to the markets," he explained. That's why "we have been undervalued, I believe, since the very beginning."

Diller added that the company's new-media properties, which include Ask.com, CitySearch and CollegeHumor, previously needed cash flow from other firms to grow but can now operate independently.

"Now that those businesses are mature, I think we can stand on our own, with IAC as a perfectly integrated Internet conglomerate," he said.

IAC was also hurt by negative public perception of the whole company when any one of its assets was in trouble. The sub-prime mortgage crisis, for instance, has impacted LendingTree and thus may have hurt the valuation of the whole conglom.

Diller said he first started considering breaking up IAC over the summer. After discussing the issue with his top execs following Labor Day, he also consulted former General Electric topper Jack Welch, whom Diller called "my great mentor."

Welch apparently agreed with the idea of a split, after which Diller approached his board. Final decision was reached about four weeks ago.

Diller will remain atop the newly downsized IAC and said he will be active on the board of "one, maybe two" of the spinoff companies.

Along with the breakup, Diller also revealed IAC has extended its deal with Google, under which the search giant provides keyword advertisements on Ask.com and other Web properties. Five-year extension, which was just completed Monday morning, is worth some $3.5 billion.

Dissolution marks the end of a process that began in 1996, when Silver King Entertainment, headed by Diller, merged with HSN. Company went on to acquire many other assets including, for a time, the USA Network, Sci Fi Channel and Universal TV. Back then it was called USA Interactive.

In 2002, those entertainment assets became part of Vivendi Universal. The next year, with an increasing number of Internet assets under the company's belt, Diller renamed the conglom InterActiveCorp.

Diller compared the spinoff to that of Expedia in 2005. That move has proven relatively successful.

IAC shareholders will receive 100% of the stock in all five companies following the transaction. It's not yet clear how John Malone's Liberty Media, which has a significant stake in IAC, will be affected. Liberty, which owns QVC, is believed to have been interested in acquiring HSN.

Shares in IAC closed up 7% Monday at $31.84.