Barry Diller's alleged right to retake control of Expedia Group, after wielding such power for 14 years, is under attack. At the least, the court-ordered delay in allowing him to exercise such rights could cost the Expedia chairman a ton of money.
Expedia Group chairman Barry Diller’s alleged right to retake voting control of the company has run into speed bump because of a shareholder lawsuit.
As part of that litigation in a Delaware state court, Expedia stipulated and the court ordered that the status quo should remain in effect, and that Diller would be unable to exercise his right on or before April 26 to purchase enough Class B shares to secure around 50 percent voting control of the company. [See a copy of the March 30 order embedded below.]
Diller can’t exercise his right under the company’s now-previous governance agreement to purchase any additional preferred shares subject to the completion of an internal investigation by the company’s special litigation committee, which is composed of independent directors. Subject to the approval of the court, Diller’s right to purchase the Class B shares and effectively reassert voting control of Expedia Group would be extended up to 45 days after the special litigation committee completes its investigation.
That assumes that the Expedia Group internal committee investigating the matter finds Diller should have the right to be the majority owner.
Expedia Group amended its governance agreement April 10 to comply with the court order.
What Does It All Mean?
Since Diller’s IAC spun out Expedia into a public company in 2005 until July 2019, when Expedia Group acquired John Malone’s Liberty Expedia Holdings, Diller had wielded voting control of Expedia under an agreement with Malone.
Following that merger deal in 2019, Diller’s voting control fell to around 29 percent, but an amended governance agreement gave him the right until April 26, 2020 to purchase enough Class B shares to retake control of the company with around 50 percent of its voting power.
Last summer, several shareholder lawsuits were filed against Expedia Group board members — and now former board members — alleging they violated their fiduciary responsibilities under the terms of the merger and amended government agreement. The lawsuits, which have subsequently been consolidated into Expedia Group Stockholders Litigation in the Court of Chancery of the State of Delaware, alleged that governance arrangements with Expedia Group as a controlled company under Diller’s stewardship haven’t served shareholders’ interests.
The Expedia Group stockholders litigation would block Diller’s right to retake control of the company, and it seeks monetary damages.
“Whereas, the Special Litigation Committee of the Board of Directors of Expedia (the “SLC”) and Diller have conferred and determined that, in light of the ongoing SLC process, it is in the best interest of the Company and its stockholders to maintain the status quo such that Diller agrees not to exercise his right under Section 3.01 to acquire additional shares of Class B Common Stock pending completion of the SLC’s investigation (or as the SLC and Diller may otherwise agree subject to approval of the Court …” the stipulation and court order read.
Expedia Group on April 10 amended its governance agreement to reflect the court order’s provisions that the status quo remains in place regarding control of the company, and that Diller would have until 45 days after the completion of the Special Litigation Committee’s investigation to exercise his right to buy additional Class B shares.
If or when the court agrees that Diller can retake control of Expedia Group — a premise that is at the heart of the shareholder litigation — the delay in exercising his rights could potentially cost the Expedia chairman millions of dollars.
Expedia’s shares closed at $62.42 on Friday. If Expedia Group were to win or settle the shareholder litigation, retaining Diller’s Class B purchase rights, and Expedia’s share price soars as the economy recovers from the coronavirus impact, then those shares could be a lot more expensive.
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Photo credit: Barry Diller, chairman of Expedia, at the World Travel & Tourism Council Global Summit in 2016. Diller's alleged right to retake voting control of the company is under legal attack. World Travel & Tourism Council / World Travel & Tourism Council