Note: We’ll be posting video clips this afternoon.
The morning session of Liberty Media (NSDQ: LINTA) v. IAC (NSDQ: IACI) in Delaware Chancery Court is in progress and we’re in virtual attendance via CourtroomLive … Liberty attorney Kevin Abrams is back, with his aggressive questioning of IAC’s Barry Diller and with many of yesterday’s questions, some reframed. One goal, it seems: get Diller to say he wants the single-tier voting system for the spincos in retribution for criticism by John Malone and Greg Maffei, respectively chairman and CEO of Liberty Media.
Not surprisingly, matters got testy. When Abrams pushed Diller on the possibility of resetting his IAC stock options as part of the spins, Diller finally replied, “I will not seek or accept if it is offered to me a reset of my stock options.” But Delaware Chancery Judge Stephen Lamb stepped in, telling Abrams that he was “sort of tricking the witness” and that it was “somewhat unfair” given that it may not be up to Diller. Asked again, a clearly exasperated Diller said, “Whatever it is, it will be. It’s not an issue. Oh my g-d .. I’ve got nothing else to say.”
Abrams pressed Diller on his responsibilities as a proxy holder for Liberty, suggesting through his questions that Diller had a responsibility to be a steward and vote in Liberty’s best interests. Diller held to his guns on his rights to vote as he sees fit: “I have a proxy subject to certain enumerated rights and that is my responsibility.”
Abrams ended this round after roughly an hour. Lots more after the jump…
– Diller’s repudiation of the contract?: (David picking up) After a brief recess, Abrams came back and addressed the judge on two points. “We have what can broadly be described as the contract claims to block the spinoff and then we have an interplay of factual questions and contract rights relating to the 225 case.” The “factual component” has to do with a January 16 meeting where Diller might have repudiated the contract, which, as Judge Lamb states: “Would rest upon an interpretation of the contract” as it relates to the rights of ownership clause.
– Briefing on claims: The judge requests a briefing on the “225 action,” saying it’s “an action that ripe to be decided.” He requests briefings from both sides on the subject by next Friday. Both sides agree to issue simultaneous briefings on the matter, after Diller’s lawyer protests mildly.
– No notice on spinco structure: Abrams then asks Judge Lamb to decide on the issue of “fiduciary duty claims.” Abrams tells the court that Liberty has not received notice on the spinco structure as part of the other notices they’ve gotten so far from IAC. The judge then asks him if he believes that issues related to the structure of the transaction that have not been authorized by the board of directors should be examined; to which Abrams says, yes, it’s up to Lamb to rule these provisions.
– Conduct claim: The facts dealing with the proceeding of the spincos are “sufficiently crystalized” that the judge can address Liberty’s conduct claim and the “improper dilution of controlling stockholder” claims. But the judge dismisses the last point on the conduct claim, saying the board is taking away the majority stockholders’ voting power. Abrams: “The argument would run that this board has announced an intention to proceed and your honor has the ability on this factual record to assess the purpose of that intention, the effect of that action – either of which are sufficient to trip them up on the conduct line of cases… They came to trial knowing what the consequences could be if your honor focused on the effects of what they’re proposing to do. Those effects will not change whether there’s a stockholder vote or further investment banker opinions or board consideration of the issue.”
– Hard to conceptualize: Judge Lamb appears to be struggling with Abrams arguments and doesn’t completely buy it. Abrams notes that Diller has apparently said in his deposition that there is not going to be a majority or minority vote. Judge Lamb: “It makes it hard to conceptualize how conduct applies when your proposition is that the board authorizes something, puts it to a stockholder vote and the person holding the majority of the voting power authorizes it. That does move this somewhat away from conduct, doesn’t it?”
– Alternative argument: Abrams: All it does is bring things back to Liberty’s “alternative arguments” that were raised about the alleged breach by Diller to “act in good faith.” That’s a contract argument that relates to the “impermissibility” of IAC going ahead with a single-tier spinoff proposal, due in part to what Libert contends is the lack of independence of the directors. The judge ends it saying that argument is more complex than the “225 issue” and that the only thing left is for both sides to meet in his chambers and discuss scheduling for next week.