Now It's War: Diller and Malone Joust Over IAC

Thank god for the roiling personal hatred between Barry Diller and John Malone. Without it, the legal fight over control of IAC that began last week and picked up speed yesterday would be just another arcane disagreement over corporate by-laws and ownership structure.

Instead, we get Diller calling his longtime business partner "insane," and Malone accusing Diller of trying to pull off a "corporate coup." And here you thought it was fighting words when Malone said Diller "doesn't use his balance sheet effectively."

Here's the background: Diller and Malone have been in business together since the mid-Nineties. Malone's 29 percent stake in IAC is enough to give him control, thanks to the power of his class B super shares, but Diller, as IAC's chairman, has an all-but-ironclad right to vote those shares.

Both parties have been looking for a favorable way to unravel this agreement, and Diller thought he had figured out how: a spin-off of IAC's five companies that would cancel the superior class of shares, reducing Malone's holding to an ordinary minority stake.

But Malone, in a legal filing yesterday, called Diller's attempted maneuver "misconduct," and cited it as grounds for tossing Diller and his allies (including his wife, Diane von Furstenberg) off IAC's board and replacing them with hand-picked substitutes. Diller says he wasn't trying to execute anything, just seeking the court's opinion on whether it was kosher.

There's a cautionary lesson here: Next time you're about to grant lifetime proxy power over your stake in a $7 billion company to some dude, think real hard about it first.