Diller to Split His Conglomerate 5 Ways
IAC Spinoffs Aim to Lessen Confusion

By Frank Ahrens
Washington Post Staff Writer
Tuesday, November 6, 2007

Barry Diller's IAC/InterActiveCorp, a conglomerate of more than 60 brands including Ticketmaster, Ask.com and the Home Shopping Network, is splitting into five publicly traded companies because, Diller said, the current structure is too complicated to be understood by Wall Street and investors.

Diller, the former head of Paramount Studios and Fox television and a former top executive at Vivendi Universal, began accumulating the many companies and brands that make up IAC about 12 years ago.

Since then, the company's bloblike movement and makeup have befuddled investors, and the structure has allowed problems with one business -- such as the recent mortgage industry troubles at IAC's LendingTree.com -- to affect the rest of the company. Diller's solution, which he came up with over the summer, was to spin off compatible brands into five companies.

"It's always complex to tell the story" of IAC, Diller said in a conference call yesterday, saying it was impossible for him to describe his conglomerate in even one paragraph. "Then, you've always got something in trouble. If you're across that many sectors, there's always some little anchor banging away out there."

Most recently, the anchor has been LendingTree -- not so little -- which saw its third-quarter revenue dive 41 percent compared with the comparable period last year, because of the real estate slump and mortgage industry meltdown.

After the spinoff, scheduled for completion by the second quarter of 2008, a slimmed-down IAC will concentrate on the company's Internet and advertising elements, such as the Ask search engine; Evite, an online invitation service; and Match.com, a dating site.

Home Shopping Network will take IAC's retail operations, which include Smith and Noble and the Territory Ahead.

The new Ticketmaster will bundle all of IAC's ticketing businesses in the United States and abroad.

Interval International, a timeshare exchange network, will take IAC's online travel businesses.

And LendingTree will be grouped with RealEstate.com and other housing-oriented online products.

Like IAC, other conglomerates have found themselves trading at what Wall Street calls a "conglomerate discount." This means that investors and analysts typically believe that conglomerates are unwieldy, inefficient structures that impede, rather than unlock, the value of their component companies.

The spinoff is not the first for IAC. In 2005, Diller spun off Expedia.com and other travel businesses at $25 per share while retaining control of the company. Expedia stock dropped to less than $15 per share but has climbed since, closing yesterday at $30.80.

Also yesterday, Diller announced that IAC had renewed its contract with Google to provide IAC Web sites with sponsored search results, a five-year deal that he estimates will be worth more than $3 billion in revenue.

In IAC's third-quarter earnings, released last week, the company reported a 7 percent gain in revenue from the comparable period last year and a 4 percent decline in profit, attributed largely to dips at HSN and LendingTree.

IAC has $1.4 billion in cash and a light load of long-term bonds. The new IAC will retain most of the cash and decide how to disburse capital to the spinoffs. IAC shareholders will own all of the equity in the five new companies, and Diller said his involvement in their activities will be at the board level.

IAC's products span 12 business sectors, and Diller has often complained that the conglomerate discount has kept its share price lower than it should be.

Shares of IAC shot up 13 percent after yesterday's announcement and closed up 7.5 percent, at $31.84 per share.

Diller, who is a director of The Washington Post Co., said that over the summer he sought the advice of Jack Welch, his long-time mentor and former head of General Electric -- a conglomerate of its own -- about splitting up IAC.

Had IAC continued as a conglomerate, Diller said, he feared it would end up "being superficial almost everywhere."

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