CalPERS on Monday filed a lawsuit against the board of directors of IAC/InterActiveCorp and its largest stockholder, Barry Diller, saying a plan for a new class of non-voting stock would secure Mr. Diller's control over the company indefinitely, reducing other shareholders' voting influence.
The lawsuit filed by the $303.6 billion California Public Employees' Retirement System, Sacramento, in the Delaware Court of the Chancery in Wilmington, comes as the IAC board of directors is scheduled to vote on the matter Thursday at its annual meeting in New York. CalPERS is seeking an injunction to stop the plan from being implemented.
E-mails and phone calls to IAC's press office were not returned.
Mr. Diller, who is the chairman of IAC, his family and their trust “own less than 8% of IAC's stock but wield 44% of IAC's voting power through his control of all of the company's outstanding super-voting Class B shares,” CalPERS said in the lawsuit.
The lawsuit said new stock issuances to fund acquisitions or for executive compensation would dilute Mr. Diller's control and accuses him of coming up with a “scheme” to issue new Class C non-voting shares along with voting shares to prevent such an occurrence. The lawsuit said IAC's public disclosures show that Mr. Diller implicitly threatened to block additional value-enhancing deals unless IAC's board agreed to amend its capital structure by authorizing a new class of non-voting Class C stock.
Mr. Diller “is 74 years old, and he is now improperly using his control to perpetuate himself in power for the remainder of his life, and then pass control to family members who have never run IAC,” the lawsuit said.
The lawsuit said this ensures that Mr. Diller and his future heirs will never lose their voting control, even if their economic ownership of IAC can be reduced far below their current 8% level.
“It's critical to the healthy functioning of our capital markets for large institutional investors like CalPERS to take a stand against this sort of abuse of corporate control,” said Anne Simpson, CalPERS' investment director of sustainability, in a news release announcing the lawsuit. “Holding the board of directors accountable through this litigation sends a strong signal to this and other companies that disenfranchising other shareholders will not be tolerated.
As of Nov. 30, CalPERS held 171,500 shares of IAC/InterActiveCorp valued at about $11.5 million.
CalPERS officials not immediately available to provide additional details on the lawsuit.
