The battle between media moguls Barry Diller and John Malone is escalating as Malone's Liberty Media asks the Delaware Court of Chancery for the right to take away control of IAC/Interactive from Diller, its chief executive.

Malone's lawyers are seeking the removal and replacement of seven IAC board members, including Diller; his wife, designer Diane Von Furstenberg; Edgar Bronfman Jr.; and Steven Rattner.

IAC issued a statement today condemning Liberty's handling of the dispute and reassuring shareholders that Liberty in no way controls IAC.
 
"This action is a desperate sideshow designed to exert pressure on the board and management of IAC as they attempt to responsibly act in the best interest of their stockholders," the statement reads. "All it demonstrates is that Liberty will stop at nothing to advance their own interests at the expense of the other stockholders." 

The public brawl between the longtime business partners was sparked when IAC announced that it wanted to break into five separate publicly traded companies.

Malone opposes the plan, first proposed in November, because it would shrink Liberty's voting power in the spinoff companies roughly in half. Liberty currently owns about 30 percent of IAC equity.

Under Diller's plan, IAC would hold on to such core internet businesses as Ask.com, Citysearch, and Match.com. The Home Shopping Network, LendingTree.com, Ticketmaster, and Interval would all be spun off.

Liberty initially filed suit last week, seeking to block Diller by revoking his long-standing control of the company's voting rights. IAC countersued, arguing for the right to proceed. Liberty's response on Monday was to accuse Diller of breaching his fiduciary responsibility and staging a "corporate coup."

Liberty lawyers argue that Diller's voting rights, bestowed by proxy agreement, were revoked when Diller decided to pursue the spinoffs without Liberty's consent.

Diller said in a statement that "after reading this new salvo, I am beginning to think these people are insane."

Malone, a cable pioneer with an engineering background, has been chairman of Liberty Media since 1990; Diller, a U.C.L.A. dropout, created Fox Broadcasting Co. and was formerly chief executive of Paramount Pictures.

Both executives are known for hot tempers and a junkyard dog approach to business negotiations, meaning that the bickering  back and forth between IAC and Liberty is likely to continue—and escalate—for some time.

The two first joined forces in the 1990s, at which point relations were apparently amicable enough for Malone to bind his hands in a proxy agreement allowing Diller to vote Liberty's majority stake in IAC for the indefinite future.

After a few years of slumping performance from IAC, the relationship has turned tense. Given a proxy agreement that Jessica Vascellaro of the Wall Street Journal  calls  "essentially unbreakable," Diller may actually be able to dilute Liberty's voting power with the use of its own shares.

Ronald Grove of BusinessWeek  predicts  that Diller  and will end up appeasing Malone by offering Liberty Media the Home Shopping Network and sundry small assets.
 
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