Barry Diller's IAC/InterActive to Spin Off Expedia

NEW YORK – IAC/InterActiveCorp. (IACI), saying its growth is being hindered by the perception that it is strictly a travel company, on Tuesday said it plans to split itself in two by spinning off online travel service Expedia.com (search) and related businesses into a company to be called Expedia.

IAC is dominated by its portfolio of Web travel sites but also has a variety of social networking, personal finance and shopping sites.

The company said the spin-off would take the form of a reclassification of IAC shares, with IAC shareholders receiving a proportionate amount of Expedia stock in a tax-free deal.

Shares of New York-based IAC were up $2.37, or 9.2 percent, at $28.25 in pre-market trading on the Inet electronic brokerage network.

"The breakup significantly reduces the (company's) complexity and allows the management teams to be more focused," Banc of America analyst Michael Savner wrote in a research note.

But Piper Jaffray analyst Safa Rashtchy told Reuters the spinoff would not make much difference to either Expedia or IAC.

"It doesn't change a whole lot in terms of their business operation," he said. "It will give a one-time boost to the IAC valuation today, because the sum of the two parts is greater than one."

Rashtchy said the stock could reach $30 in Tuesday trading.

Barry Diller (search) will remain chairman and chief executive of IAC, while Expedia will be run by Diller as chairman and Dara Khosrowshahi as CEO. Diller's IAC stock options will be converted to options in both IAC and Expedia.

Diller said in a statement that IAC's travel businesses have enjoyed tremendous growth "to the point where they now represent over 50 percent of IAC's earnings, and dwarf each of our other operations."

"The result of our success in travel, and its present overweighting, is that IAC is viewed by the world as a travel company," Diller said. "We've come to discover that this perception actually hinders the ability of our company to grow, both outside travel and inside of it."

The Expedia spin-off will include the domestic and international operations of Expedia.com, hotels.com and several other travel-related businesses.

After the spin-off, IAC will be a diversified interactive commerce company that includes ticketing, electronic retailing, financial services and real estate, local and media services, personals and teleservices. These businesses include Ticketmaster, the Home Shopping Network, CitySearch and match.com.

The spin-off, expected to be completed in the 2005 second quarter, comes at a time when rival travel companies are expanding through acquisitions.

Cendant Corp. (CD), the No. 2 online travel agency after Expedia, bought travel Web site Orbitz for $1.25 billion in September and bought Britain's Ebookers Plc, owner of Europe's No. 2 travel site, for about $404.3 million earlier this month.

Online travel sites are competing fiercely for customers and fighting growing competition from new travel sites and hotel operators.