IAC Splits Off Four Divisions

Ticketmaster, Lending Tree, HSN, Interval to Stand Alone

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NEW YORK (AdAge.com) -- Barry Diller is banking his IAC -- a newly slimmed-down version -- on the fast-growing, quickly changing online
Barry Diller
Barry Diller Credit: Donna Ward

The company will spin four of its divisions into separate, publicly traded companies: Ticketmaster; Lending Tree; home-shopping business HSN; and time-share travel business Interval International. What's left -- including Ask.com, Match.com, CitySearch and CollegeHumor, among many other businesses -- will be part of an internet media and services company that will claim more than 50% of its revenue from web advertising. At present, the media and advertising unit accounts for only 9% of IAC'S total revenue.

Sweeping backdrop
Mr. Diller, CEO, held court against a sweeping backdrop of the Manhattan skyline in a boardroom at the company's Frank Gehry-designed headquarters and enthusiastically spoke about the online ad market.

"There's no question internet advertising is effective -- and not only effective but absolutely trackable," he told two dozen or so analysts and journalists who had gathered earlier today to hear more about the split. "Right now internet advertising is about 3%, 4% of total ad spending -- it isn't over 5% -- but I can promise you one thing, it ain't going to stay there."

Online advertising is expected to reach just more than $20 billion in the U.S. this year, according to eMarketer; next year it is expected to rise to $28.2 billion.

Underscoring his bullishness, and helping to fuel the company's confidence in its new pared-down version of its former self, is a $3.5 billion deal with Google to provide sponsored search monetization on IAC's Ask.com engine. IAC has an existing agreement with Google that was due to end Dec. 31; in recent months it had been wooed by other big search players.

Key to the split
Mr. Diller said the Google deal wasn't the only reason the company was able to do the split, but it was a "key component" and would put the new IAC in a great position.

At the core of IAC's decision to split itself up was a corporate identity crisis stemming from being in too many businesses at once, Mr. Diller said. "It cannot be said in a single sentence: 'What is IAC?'" he lamented. The company was in 12 business sectors with 60-plus brands. He also expressed frustration that the company was undervalued by Wall Street and that the focus is always on the businesses that are in trouble, clouding the growth of the fast-growing web businesses.

When you're in as many businesses as IAC, Mr. Diller said, the valuation is clouded by complexity and you've "always got something in trouble ... there's always an anchor" holding down the company.

As for some of the creative synergies between various IAC divisions Mr. Diller and his colleagues have spoken of in the past, he said the companies would continue to capture working synergies, such as sourcing, ad serving and ad buying, but that in other cases they might have commercial agreements. He said there would not be restrictive deals among the divisions; for example, if one of the new public companies thought it made sense to license a search provider, it would not be required to be part of the Ask.com network.

Clearly IAC employees this morning were still catching wind about the split themselves -- one called out from the elevator bank to another just coming in from a morning run:

"Did you see the news?"

"What news?"

"Our company's breaking up."

Ball got rolling this summer
Mr. Diller said he started contemplating the split over the summer, believing the growth of the newer online advertising and media companies within IAC, such as Ask.com, Zwinky, InsiderPages and CitySearch, were far enough along in their evolution to stand by themselves. He gathered his executive team just after Labor Day and then consulted with former General Electric CEO Jack Welch, who has advised IAC in the past. He posed "a lot of questions," said Mr. Diller, but ultimately thought the move made sense. IAC's board of directors was sent a proposal three to four weeks ago and the board approved the split last Friday.

"It was a natural, rhythmic process," he said.
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