IAC/InterActiveCorp splits into 5 companies
— -- Barry Diller's IAC/InterActiveCorp iaci announced Monday that it would break into five publicly traded companies, abandoning its longtime strategy of being an Internet conglomerate.
While shares of other Internet companies have soared this year, IAC/InterActiveCorp, a mishmash of businesses ranging from online dating to mortgages to Ticketmaster, has languished as investors struggle to understand just exactly what it is.
Even after jumping $2.22, or 7.5%, to $31.84 Monday, the stock is down 14% this year. The USA TODAY Internet 50 index, on the other hand, is up 27.1%.
"It was hard to explain what kind of company IAC was," says Mark Demos, co-portfolio manager of the Fifth Third Technology fund, which owns the stock. "The full value was not realized because (management's) attention was on so many areas."
The breakup is designed to let five companies go their separate ways, including:
•IAC, which will keep the companies that are part of IAC's media and advertising unit, including search engine Ask.com and online dating service Match.com. Investors hope those businesses will generate the growth they expect from an Internet company. IAC's revenue grew 7% and net income fell 4% in the recently reported third quarter.
"In Internet speak, that's not much growth," says Martin Pyykkonen of Global Crown Capital.
The unit gets a head start with a five-year deal with Google under which the search company will pay at least $3.5 billion to deliver ads to Ask.com.
•HSN, which will contain IAC's retail operations, such as shopping network HSN and HSN.com. This unit, which is "still finding its legs," has been challenging for IAC and one of the reasons that the stock has been depressed, says Scott Kessler, stock analyst at Standard & Poor's.
•LendingTree, which will own the mortgage broker service LendingTree plus other real estate businesses such as RealEstate.com and Domania. Housing market troubles have plagued this business and caused some investors to shy away, Kessler says.
•Ticketmaster, which owns the domestic and international ticketing service plus other offerings such as Admission.com and TicketWeb.
•Interval International owns a number of online vacation services, such as CondoDirect and VacationSource.com.
IAC had also owned online travel site Expedia until spinning it off in 2005. Since then, Expedia shares have gained nearly 30%, while IAC's have lost about a third of their value.
Having so many different businesses was unwieldy because troubles in one or two units would distract investors and management attention from businesses that were doing well, says Mark Oelschlager, portfolio manager of the Red Oak Technology fund, which owns the stock.
"We've been waiting for this announcement for a while," he says.
Some, such as Citigroup's Mark Mahaney, think breaking up won't make it worth more. He says the company was about to boost its profitability.
Still, IAC's move is an acknowledgment that the concept of holding giant baskets of Internet stocks isn't necessarily working. And this strategy of selling off distracting units is one that could become more popular. "Sometimes the parts are worth more than the whole," says Ed Wedbush of Wedbush Morgan.