Diller Defends USA’s Buyout Plans

Barry Diller, USA Interactive’s chief executive officer, defended as “economically sound” the company’s now-delayed plans to buy out remaining shares of three of its fast-growing subsidiaries.

“The idea is that USA wants to simplify its capital structure,” he said Thursday during a conference call.

Diller and company officials announced the call in order to discuss why, on Wednesday, it put the brakes on its two-day-old offer to buy out remaining shares in its wholly-owned subsidiaries Expedia , Hotels.com and Ticketmaster .

Investors that have watched the price of the fast-growing travel site Expedia go from the $40 range to over $70 inside of a year had questioned whether swapping their shares for 2.6969 of USA’s would stymie growth, especially as USA’s price started to slide.

The deal offered Expedia public shareholders 2.6969 USA shares for each of theirs. For Hotels.com, the offer was an exchange ratio of 1.8064 and Ticketmaster’s offer was 0.8068 USA shares for each Ticketmaster share.

USA said it would issue about 156 million shares to cover the offer, which valued the deal at about $4.5 billion based on its $28.50 share price at the time of the announcement Monday.

Since then, USA has slid by 11 percent to $25.26, bringing the deal’s stock value to just under $4 billion. However, company officials disputed that figure, saying in reality, the 7.5 percent premium on the exchange offers represented a deal worth about $275 million.

“We think it should not be hard to convince someone of folding (those securities) into USA’s because over time, it will have greater value” and will be protected from current volatility, Diller said.

The conference call came on a day when markets were further roiled by bad news in the wireless sector, and concerns related to reported investigations into conglomerate Tyco’s financial dealings depressed an already glum mood in the markets. Shares of all four companies were off by end of trading Thursday: Expedia had slid close to 5 percent to $69.62; Ticketmaster.com was off over 5 percent to $20.88 and Hotels.com was down by 4 percent to $47.19.

Diller said he wanted to hold the conference call in order to address negative market reaction, possibly wait out a “downdraft” that hit broader markets as the deal was announced, and to take more time to explain the deal to shareholders.

During Thursday’s call, he said he regretted stating that the company
would begin an exchange offer for all three subsidiaries in the near future.

“Given the complexity, and given the issues, that was a mistake,” he said of the fast-track approach. What the company has launched instead, he added, is a slower tack in explaining USA Interactive’s strategy to shareholders.

“We think this is a ongoing process. We’ve begun it now, under a certain glare of the day.”

Namely, Diller’s plan is to align USA’s e-commerce subsidiaries into a simplified capital structure, a process that began six years ago when USA launched its plan to build an e-commerce powerhouse.

“We do not rule out an exchange offer that may or may not take place” at this point, Diller said. The tender may still go forward in the future, but Diller said the conversation ratios offered would not be increased.

The exchange ratios offer a 7.5 premium on the three company’s shares, but more than that, Diller added, it’s about long-term value — and about talking to shareholders instead of trying to force it on them as a majority owner.

Since selling off its cable and movie studio operations to French media giant Vivendi Universal, USA Networks has changed its name to USA Interactive and gone shopping for e-commerce roll-ups.

Last month, it acquired the parent of timeshare-sales company Interval Acquisition Corp. in a $578 million cash and stock deal. Diller has stated publicly that he’s looking to spend $9 billion on e-commerce acquisitions over the next few years.

In addition to its stakes in Expedia, Ticketmaster, Hotels.com, online dating concern Match.com and city guide site Citysearch, the New York-based company is in the midst of launching a new cable/online travel sales channel called USA Travel Channel.