Liberty's Malone criticizes Diller in court

— -- Liberty Media Chairman John Malone criticized IAC/InterActiveCorp CEO Barry Diller on Monday for reaping more than $1 billion in compensation as the Internet and media company lost value.

Malone, whose company owns shares with more than 60% of IAC's iaci voting rights, testified as a trial over control of IAC began in Delaware Chancery Court. He is asking Judge Stephen Lamb to let him replace members of the IAC board.

"Since 2000, they have lagged seriously behind the Nasdaq and other indexes," Malone said.

Diller plans to split IAC into five parts, each with a single vote per share. Malone wants a two-tier structure to maintain his control.

Liberty holds 30% of IAC's shares and about 62% of its voting power. But Diller controls the voting rights of Liberty's IAC shares through a proxy agreement, which Malone is challenging.

Diller's plan to split the company is "a breach of the stewardship that we granted him at the start of this relationship," Malone said.

Liberty linta contends that Diller is using the proposal to preserve his legacy at the company.

"He believed that it was his company," Malone testified. "He frequently refers to it as his business."

IAC says that Liberty's attempt to remove directors is invalid and that Diller may vote Liberty's shares of IAC without Liberty's permission.

Diller and Malone have worked together since 1995. Malone testified Monday that he holds "no ill will" for Diller despite the litigation.

"We both have hurt ourselves a little bit" by having the dispute end up in court, Malone told Lamb.

The relationship soured after Liberty hired Greg Maffei as chief executive in early 2006, Malone said.

Malone said he knew Maffei had clashed with Diller during IAC's 2001 bid to buy Microsoft's msft majority interest in online travel agency Expedia, expe where Maffei was chairman. Malone described a conversation with Diller in which the IAC chief called Maffei "a poor choice."

Shortly after Maffei arrived, Malone testified, Liberty began looking for ways to circumvent the proxy agreement and gain control of IAC.

"Mr. Maffei can be pugilistic where these issues are concerned," Malone said.

A $275 million fee Diller reaped as a consultant in a deal involving Vivendi also "raised eyebrows," Malone said. That fee was on top of $1.1 billion in compensation from IAC, he said.

Diller's "aggressive" use of IAC's corporate aircraft also was a concern, he said.

His trips on the company's jets "pushed the boundaries" of what was appropriate, Malone added.

Malone said that at one point officials discussed swapping Liberty's stake in IAC for one or more of the company's units. The spinoff plan is Diller's attempt to gain leverage in that negotiation, Malone said.

Contributing: Phil Milford in Wilmington, Del., and Tim Mullaney and Oliver Staley in New York