Byline: By danny hakim section: Section B; Column 0; Metropolitan Desk; Pg. 1 Length

March 16, 2008 Sunday

Late Edition - Final

Barry Diller Conquered. Now He Tries to Divide.
BYLINE: By GERALDINE FABRIKANT and MIGUEL HELFT; Brad Stone contributed reporting.
SECTION: Section BU; Column 0; Money and Business/Financial Desk; Pg. 1
LENGTH: 3055 words
WHEN Jim Collins, author of ''Good to Great,'' a guidebook for corporate makeovers, spoke at an executive retreat two years ago for IAC/InterActiveCorp, the company's founder, Barry Diller, took advantage of the occasion to poke fun at himself.

IAC, Mr. Diller joked, would never be a great company, recalled several people who attended the event and requested anonymity because they were not authorized to comment publicly.

Today, Mr. Diller, the 66-year-old entrepreneur who cut a swath through the media and Internet worlds by racking up a string of high-profile acquisitions, may have less reason to laugh.

Although he once described his desire to make IAC the largest and most profitable interactive commerce company in the world, the enterprise he cobbled together from a group of shopping services and Internet concerns is floundering badly.

IAC's stock is down 44 percent over the past 52 weeks. Those who invested in the company five years ago have seen their stakes drop 17 percent in value -- during a period when the overall stock market, as measured by the Standard & Poor's 500, rose 54 percent.

While Mr. Diller's early embrace of interactive television and the Internet enhanced his reputation as a new-media visionary, his more recent acquisition binge has caused some analysts to describe him as a mogul undone by a hectic shopping spree that raises questions about his business judgment.

''When Diller was young and ran ABC, then Paramount and, later, Fox, he was a very efficient studio head,'' said Bruce Greenwald, a Columbia Business School finance professor who teaches a course on the media business. ''He was early into the home shopping and the Internet market when it was growing and not many people saw it.

''When the market is going through the roof, if you overpay, the market bails you out,'' he added. ''But when a market is flat or down or not going anywhere and you have overpaid, you look terrible.''

For his part, Mr. Diller declined to respond to a detailed list of questions. But in an e-mail statement he said that he is optimistic about the prospects for the slew of companies he oversees.

''The company continues to perform well at the operating level. While there are many bright spots in the company, I am the first to recognize there are challenges,'' he said. ''The combination of over 60 brands makes it difficult for shareholders to appropriately value the company and for each brand to truly blossom. For that very reason, we are moving toward a spin-off that will create five companies that will each be more focused.''

Last week, Mr. Diller appeared in a Delaware courtroom to lock horns with IAC's biggest shareholder, John C. Malone, the cable impresario who at one time was one of Mr. Diller's biggest fans. The two men are battling over Mr. Diller's effort to break up IAC (a move, IAC points out, that many analysts support). Mr. Malone opposes a breakup, arguing in part that it would unlawfully diminish his voting power as a major IAC shareholder.

In testimony last week, Mr. Malone said IAC's results ''have lagged seriously behind Nasdaq'' and other indexes. He criticized Mr. Diller's aggressive use of corporate aircraft, saying ''he made it a fine art,'' and took issue with the amount of management turnover at IAC. ''I have always loved long-term, stable management building value,'' he said.

During his own testimony, Mr. Diller dismissed Mr. Malone's criticisms, arguing that a breakup would allow each of IAC's ''fresh, new little babies'' to flourish.

Responding to Mr. Malone's criticism of his $295 million pay package in 2005, Mr. Diller testified that ''almost all of it was from a stock option that had been granted 10 years earlier.'' He added: ''I exercised the options. I paid the taxes and took the balance in IAC stock, which I hold today.''

Mr. Diller left the courtroom on Friday, after his second day of testimony, feeling confident about the proceedings. ''It was good,'' he said in an interview. ''I liked the cut and thrust of it. And at the end of it, I believe we are on the side of the angels.''

Amid the head-butting with Mr. Malone, some analysts who follow IAC say they remain unimpressed by Mr. Diller's stewardship.

''I don't think there is any objective evidence that he has done a good job running the company,'' said Mark Mahaney, a Citigroup analyst. ''It's not that he has done a terrible job, but it is not clear that he has created value or improved the performance of the assets that he has acquired.''

Indeed, even some of those closest to Mr. Diller and IAC are sometimes at pains to describe his corporate strategy. ''He has a vision, and he's not quite sure what it is, you know,'' Diane von Furstenberg, the fashion designer who is Mr. Diller's wife and an IAC board member, said in an interview on ''60 Minutes'' last summer. ''And then he kind of fakes it until he makes it.''

MR. DILLER began his career in Hollywood, coming of age during the 1960s and 1970s when a crop of young, maverick executives were taking new approaches to the film and television businesses.

''He was always ahead of others in seeing where the industry was going,'' said Sidney Sheinberg, a longtime Hollywood insider who was president of MCA when it owned Universal Pictures. ''He was also known for speaking his mind, which is unusual in a town where few people are willing to. I always thought it was a very valuable quality.''

Mr. Diller started off working in the mailroom of the William Morris Agency, a position that propelled other Hollywood figures like David Geffen and Michael Ovitz. In 1966, he moved over to the ABC television network, where he became head of feature films and program development three years later. He made a name for himself by creating the ''Movie of the Week'' franchise, which became a staple of television programming.

From there, he moved to Paramount Pictures, overseeing its movie studio and television production businesses at a time when the studios began to understand that they needed to become multifaceted entertainment enterprises.

''He understood and was astute about pioneering the modern entertainment company and its complexities from cable to syndication,'' said Jeffrey Katzenberg, who worked with Mr. Diller for 11 years and is now chief executive of DreamWorks Animation.

Mr. Diller's success at Paramount caught the eye of Rupert Murdoch, head of the News Corporation, who hired him in an effort to build the Fox Network with edgier programming for younger audiences, a niche not served by the three mainstream networks at the time.

Fox expanded rapidly and won legions of new viewers. But despite that success, Mr. Diller was unhappy not running a company of his own. In 1992, he took over QVC, the home shopping channel, and watched the value of that investment soar. The QVC acquisition, along with his performance at Fox, cemented his reputation as a savvy businessman.

After a failed bid for Paramount Communications in 1994, he left QVC and restarted his career yet again, by acquiring control of Silver King Communications, a group of television stations. That acquisition became the foundation of a hodgepodge of companies, under the umbrella of HSN Inc., that rapidly came to include the Home Shopping Network, Ticketmaster, the USA Network and dozens of other assets.

During this time, Mr. Diller struck a home-run deal. In 1998, he bought Universal Television for slightly more than $4 billion from Seagram. Just four years later, he sold it to a Vivendi joint venture for $11.7 billion.

After a series of deals, Mr. Diller rechristened his holding company IAC/InterActiveCorp in 2003, seeking to give it a nameplate conveying all of the cachet and promise of a modern digital concern.

CURRENTLY, IAC is an amalgam of most of the original HSN businesses as well as a passel of other operations, like a coupon business, Entertainment Publications Inc., and three Internet entities: Ask.com, a search engine; Match.com, a dating service; and LendingTree.com, which matches prospective mortgage borrowers with lenders.

Even with these properties, Mr. Diller until recently has had a voracious interest in further deals. And, those close to him say, he sees IAC as a clearinghouse for those transactions.

''At its core, it is a mergers-and-acquisitions deal shop,'' said one executive at the company, who requested anonymity because of his relationships there and with Mr. Diller. ''IAC does not have a mission as to why you want to be all together. Its mission is nothing more than doing what is interesting to Barry.''

Although the company's revenue over the past three years has risen 79 percent, some of the acquisitions that captured Mr. Diller's interest haven't paid off for shareholders lately. In fiscal 2007, IAC lost $144.1 million on sales of $6.37 billion, largely because of a $475.7 million charge related to LendingTree, which has been hammered by the mortgage debacle. The company also took a $57.2 million charge related to Entertainment Publications, which it bought five years ago for $360 million.

Ask.com, which IAC bought for $1.95 billion in 2005, has also lagged, failing to compete effectively with Google or to become a unifying force for IAC's various digital holdings.

''Diller and his team underestimated the basic laws of inertia that keep people searching on Google,'' said Jordan Rohan, an analyst at RBC Capital Markets. ''The Ask.com asset is certainly worth more than Diller paid for it. But it is not the heart of the IAC platform as Diller had hoped.''

Still, there have been some stars in Mr. Diller's corral, especially the travel Web site Expedia, which IAC bought in 2002 and 2003 and then spun off in July 2005. Ticketmaster has been a reliable business. And Match.com has gained subscribers and profits, according to analysts, in part because of smart site design and savvy marketing.

''They stuck to their knitting and they've been able to maintain that critical mass,'' said Scott Kessler, an analyst at S.& P. ''If you think of one singular brand that is associated with online dating, it is Match.com.''

Douglas Anmuth, a Lehman Brothers analyst who is bullish on IAC's prospects, says the company's weaknesses are attributable to weaknesses at the smaller units, like LendingTree and Entertainment Publications, which mask solid performances at the largest holdings, like Ticketmaster and the Home Shopping Network.

In his e-mail statement, Mr. Diller said that it's ''an undeniable fact that I, and the many employees of what has become both IAC and Expedia, have created over $10 billion in shareholder value since 1995.'' IAC said the reason its stock is down 23 percent this year is the weakened environment for Internet stocks over all.

Yet inside IAC, some of the key operational machinery appears to be sputtering at times. The company's mergers-and-acquisitions team has had a succession of six senior vice presidents in the past 10 years. The team is overseen by Victor A. Kaufman, who is IAC's vice chairman and a longtime adviser to Mr. Diller.

IAC declined to comment about the revolving door in the company's M.& A. shop.

For all of Mr. Diller's prescience, IAC has missed out on some promising acquisitions. In 2005, it could have bid on MySpace, the social networking site, but balked at an initial $400 million asking price, according to two people involved in the discussions who requested anonymity because of confidentiality issues. Several months later, the News Corporation bought it for $580 million in a deal that is widely regarded as a coup.

That same year, IAC bought Cornerstone Brands, a catalog and Web site company, for $720 million. IAC recently indicated that it was willing to sell Cornerstone because Mr. Diller no longer considered it a core asset.

In 2002, according to two people familiar with the effort, several investors, including Gordon Crawford, a longtime media investor, lobbied Ticketmaster to buy StubHub, a private company then known as LiquidSeats that was building an online resale marketplace for tickets to concerts and other events. The price was about $20 million.

But Ticketmaster punted, preferring to create its own service, these people said. The Ticketmaster entry, TicketExchange, ''never got the traction that was hoped,'' said Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Company.

Last year, eBay bought StubHub for $310 million. To compete better in the secondary ticket market, IAC just bought another player, TicketsNow, for about $265 million, according to published reports.

''They paid roughly the same price for a company with half the revenues'' of StubHub, said Eric H. Baker, a co-founder of StubHub who now runs Viagogo, an overseas ticket resale company.

Some financial headaches are on the horizon for Ticketmaster, despite its strengths. Next year, Live Nation, which sells concert tickets, is terminating its contract with Ticketmaster. That partnership accounts for about 15 percent of Ticketmaster's revenue, and IAC is trying to find a partner to replace it.

IAC declined to comment about Ticketmaster's operations and financial future.

If Ticketmaster represents lost opportunities, LendingTree simply represents losses.

In 2003, IAC bought LendingTree for $725 million, or a hefty four times revenue. Like many others, Mr. Diller had become infatuated with the real estate boom, and he called LendingTree ''the perfect solution'' for getting him into the game.

But in contrast to his timely investment in QVC, his arrival at the real estate party was relatively late, and LendingTree's relationship to the rest of IAC was vague at best, some media experts argue.

''At the time, I thought the business was far afield from the typical consumer needs that they were servicing,'' said Harold Vogel, a longtime media analyst. ''Home lending is a different demographic and income scale from their other businesses, which are low-budget items.''

Mr. Diller and IAC declined to comment about LendingTree.

When the mortgage market began melting down last year, LendingTree's finances withered, leading to large write-offs.

''LendingTree had a much greater proportion of subprime and nonconforming loans than was expected,'' said Mr. Lindsay, the Sanford Bernstein analyst. ''It resulted in a much faster deterioration in the business than Wall Street anticipated.''

On top of the mortgage mess, LendingTree faces a lawsuit filed in a state court in Irvine, Calif., that contends that the company's popular theme -- ''When bankers compete, you win'' -- was not always the case.

The picture of LendingTree's practices that emerges in court papers filed on behalf of borrowers nationwide -- as well as interviews with several former LendingTree salesmen -- is of a company maneuvering customers into borrowing directly from LendingTree without making it clear that they were doing so.

The court filings and interviews suggest that thousands of people who signed up with LendingTree to get the most competitive loans were actually directed to a company owned by Lending Tree itself, rather than to other lenders.

Michael McCarver, who was a LendingTree salesman in Charlotte, N.C., for a year and a half before resigning in 2006, said in an interview that he was taught to tell customers that LendingTree always argued on their behalf for better loan terms. ''We will call the lenders and haggle them down,'' he recalled saying to borrowers. But he said that he would simply put customers on hold and ''sit back'' without contacting any lenders. Then he would steer them into Lending Tree's own mortgage operation.

In a telephone interview, the Lending Tree founder Douglas Lebda denied the court allegations and did not respond to Mr. McCarver's descriptions of the company's practices. Mr. Lebda said that there was full disclosure on the company's Web site that customers may be sent to LendingTree Loans and that each client receives the best rate for the borrower's financial situation.

''Lending Tree receives the wholesale price, and the retail price is conveyed into a system that is available to the loan officers,'' Mr. Lebda said. ''What they see is the end price to the consumer.''

IF Mr. Diller succeeds in breaking up IAC, LendingTree -- and some of its legal and financial headaches -- will be handed off to others in a spin-off.

Some of IAC's older businesses are chugging along. Year-over-year revenue at Home Shopping Network grew 8 percent in the fourth quarter, a faster rate than during previous quarters. Nevertheless, it still trails QVC, its main competitor, in revenue growth and operating margins.

But the improvement in that business comes more than a decade after Mr. Diller bought it, and some on Wall Street have been eager for him to sell the network. Mr. Malone's company, Liberty Media, owns QVC and may be a prospective buyer, regardless of his court battle with Mr. Diller.

''The problem is that the HSN's TV sales unit, which is the core of the business, tends to appeal to an aging demographic,'' said Mr. Lindsay, the analyst. ''The way to move ahead is online. The question is how fast can they migrate online and what can they do with the residual TV business.''

Longtime followers of Mr. Diller, meanwhile, are wondering why a man who nine months ago was trumpeting the potential of integrating IAC's assets is now so eager to spin them off on the theory that they will become more valuable as discrete businesses.

''I know now that in fact many of our businesses relate to each other,'' Mr. Diller said just last summer, during his own appearance on ''60 Minutes.'' ''We are tying location to event to ticketing to reviews to all of these different things.''

Then, in January, Mr. Diller did an about-face, announcing his decision to break up IAC into five easy pieces. Investors and analysts are now scratching their heads, waiting to see what happens next.

''If you listened to him six months before, this is a great ball of wax,'' said Mr. Vogel, the media analyst. ''If it was so great six months ago, how come we are breaking it up? IAC does not seem to have any strategy. You would need a playbook to figure out what was bought and what was sold and what were the gains and what were the losses.''
URL: http://www.nytimes.com
SUBJECT: STOCK INDEXES (91%); INTERNET & WWW (89%); SHAREHOLDERS (75%); INTERACTIVE TELEVISION (70%); TEACHING & TEACHERS (70%); MEDIA CONVERGENCE (70%); COLLEGE & UNIVERSITY PROFESSORS (63%); BUSINESS EDUCATION (69%)
COMPANY: IAC/INTERACTIVECORP (93%)
TICKER: IACI (NASDAQ) (93%); IACID (NASDAQ) (93%)
INDUSTRY: NAICS454113 MAIL-ORDER HOUSES (93%); NAICS454111 ELECTRONIC SHOPPING (93%); SIC5961 CATALOG & MAIL-ORDER HOUSES (93%)
PERSON: BARRY DILLER (97%); JOHN MALONE (50%)
GEOGRAPHIC: IDAHO, USA (59%); DELAWARE, USA (50%) UNITED STATES (59%)
LOAD-DATE: March 16, 2008
LANGUAGE: ENGLISH
GRAPHIC: PHOTOS: Barry Diller bought wide-ranging properties like Home Shopping Network, Ask.com, Match.com and LendingTree.(PHOTOGRAPH BY ROB CARR/ASSOCIATED PRESS)(pg. BU1)

Barry Diller last year at Allen & Company's conference in Sun Valley, Idaho. He was a pioneer of interactive media.(PHOTOGRAPH BY ANDREW COMBERT/EUROPEAN PRESSPHOTO AGENCY)

John C. Malone, a major IAC shareholder, is trying to block the company's breakup.(PHOTOGRAPH BY JOHN RANDOLPH/REUTERS)(pg. BU7) CHART: Underperformance: How an investment would have performed since IAC's Expedia division was spun off in August 2005.(Source: IAC) Chart details line graph of S&P 500 Index and change in consolidated stock price for IAC and Expedia. (pg. BU7)
PUBLICATION-TYPE: Newspaper

Copyright 2008 The New York Times Company

977 of 1231 DOCUMENTS

The New York Times
March 15, 2008 Saturday

Late Edition - Final

A Dispute Over Utah Land Intensifies
BYLINE: By DAN FROSCH
SECTION: Section A; Column 0; National Desk; Pg. 11
LENGTH: 837 words
A long-simmering dispute over the best use for millions of acres of federal land has erupted publicly with the request by some Utah legislators that a well-known local environmental organization open its books after two of its directors were sentenced to prison in separate multimillion-dollar bank fraud cases.

Federal authorities have said that the group, the Southern Utah Wilderness Alliance, commonly called SUWA, was not involved in the cases, which led to the convictions of its treasurer, Mark Ristow, and another board member, Bert Fingerhut, who was once SUWA's chairman. Each man pleaded guilty last year to using stock conversion schemes to swindle banks across the country of a total of more than $15 million.

But a letter signed by 45 Utah state legislators, most of them Republicans, asked SUWA to disclose details of its finances, meeting-minutes correspondence and other transactions involving Mr. Fingerhut and Mr. Ristow or occurring during the period of their criminal activities.

SUWA's leadership and supporters called the letter, written by State Representative Michael E. Noel, Republican of Kanab, a politically motivated effort to discredit the group because of its role in drafting proposed legislation designating about 9.5 million acres in Utah as federally protected wilderness. The land includes much of the state's storied red rock country.

Congress has designated slightly less than a million acres in the state as federally protected wilderness, the lowest acreage of any Western state, the group said. Once land is so designated, it is closed to new mineral leasing and to use by motorized vehicles.

''In Utah, wilderness is our scarcest resource,'' said the staff lawyer for SUWA, Stephen Bloch. ''To the extent that Representative Noel's efforts succeed in diverting the argument away from how we protect these spectacular public lands, that's unfortunate.''

The federal legislation, sponsored most recently by Representative Maurice D. Hinchey of New York and Senator Richard J. Durbin of Illinois, both Democrats, has been introduced every Congressional session since 1989. Over the years the number of acres proposed for protection has grown, angering many Utah lawmakers, who contend that restricting use of the land will harm the state's economy.

''The members of the Legislature seem to have a lack of appreciation for the fact that these are public lands,'' Mr. Bloch said. ''They view them as Utah lands to be managed for and by Utahans, and we strongly disagree with that.''

Mr. Noel, who has clashed with SUWA over wilderness issues before, said that disagreements with the environmental group were an impetus for the letter.

''These guys push us to the very brink of economic disaster within our state,'' Mr. Noel said, adding: ''It's absurd to take this hammer approach to try and protect the environment. It's way overkill.''

The state lawmakers also argue that the convictions of Mr. Fingerhut and Mr. Ristow raise questions about SUWA's credibility.

''Two of its board members were engaged in fraudulent activities that stole millions of dollars from credit unions,'' said State Representative Aaron Tilton, Republican of Springville, who signed the letter, ''and we want to know if any of that money made its way into SUWA.''

Mr. Tilton is vice chairman of Americans for American Energy, which advocates energy development. The Web site for a campaign the group sponsors, www.stoputahlandgrab.org, ties SUWA's and Representative Hinchey's support for wilderness protection to increased dependence on foreign oil and to aid to terrorists.

SUWA's vice chairman, Ted Wilson, a former mayor of Salt Lake City, said his group's leadership was ''shocked to the core'' that Mr. Ristow, a Harvard-educated, retired real estate entrepreneur, and Mr. Fingerhut, a former executive of Oppenheimer & Company, had orchestrated elaborate bank frauds for years.

Both were respected within SUWA. Mr. Fingerhut was a prolific fund-raiser and, like Mr. Ristow, had been on the board for about 20 years. Each evaded state and federal banking regulations to make illegal stock purchases from banks that were going public, according to the Securities and Exchange Commission. The two men generated millions in personal profits once the stock was sold, according to the commission.

''All of us were just amazed and just felt terrible,'' Mr. Wilson said. ''They'd been at our side for a long time. It hurt deeply.''

Last August, a federal judge in New Jersey sentenced Mr. Fingerhut to two years in prison. In January, Mr. Ristow was sentenced to 20 months.

The securities commission has never implicated SUWA in any wrongdoing, said David Rosenfeld, an associate regional director of the S.E.C.'s New York regional office.

''There are no allegations with respect to that organization in any of our filings,'' Mr. Rosenfeld said.

Mr. Bloch said SUWA, like other nonprofits, planned to release only information already made public, including its tax forms.