• by Wayne Friedman , March 11, 2008

Longtime adversaries--and partners--media moguls Barry Diller and John Malone are finally getting their day in court.

The legal battle between Diller and Malone started on Monday in Delaware Chancery Court to hear opinions about the fate of Diller's IAC/InterActiveCorp plan to split up the company.

At issue is IAC's plan--announced in November--to divide the company into four units: HSN home shopping network, Ticketmaster ticketing service, Interval time-share business and LendingTree mortgage referral units.

Malone disagrees with the plan, but doesn't have a say. While Diller wants to increase shareholder value, his strategy will have the tangential benefit of lessening Malone's control through his Liberty Media company.

Currently, Malone's Liberty Media has about 30% of IAC equity, but 62% of the voting power of its outstanding stock. Under Diller's new plan, Liberty's voting power would shrink to about 30% in the spinoff companies. IAC has long controlled Liberty Media's voting rights in IAC board matters through proxy because of a stockholder's agreement with Liberty.

IAC shares have dropped just over 20% since January, when the financial controversy started. IAC shares have been trading around $19.50.

"My opinion is that it's a breach of the stewardship that we granted him when we started this whole relationship," said John Malone, during initial questioning.

Malone also wants to remove seven IAC board members, including Diller and his wife, the designer Diane von Furstenberg, Edgar Bronfman Jr. and Steven Rattner.

Malone and Diller's history started in the late 1990s, when Diller wanted to buy the Silver King Broadcasting stations and Home Shopping Network. "Malone essentially staked him to buy the stations," says Hal Vogel, president of Vogel Capital Management.

Should Malone have a say in IAC? "He should have a say. There are moral obligations," says Vogel. "[Even without voting control], he is a significant and important shareholder."