Jan. 29 (Bloomberg) -- Liberty Media Corp., billionaire John Malone's entertainment and Internet retailing company, sued to win control over IAC/InteractiveCorp after its Chairman, Barry Diller, proposed breaking it into five companies.

Liberty Media, which holds a 30 percent of IAC's shares and 62 percent of its voting power, asked a court to let it oust Diller and six directors from IAC's board, according to a complaint filed yesterday in Wilmington, Delaware. Liberty, owner of the QVC and Starz channels, requested that three of its nominees be appointed to IAC's board to fill the vacancies.

The relationship between Diller, 65, and Malone, 66, who have worked together since Diller's 1995 investment in Malone's Silver King Communications, crumbled after Diller said he would split up IAC's HSN home shopping network, Ticketmaster and three other units. The proposal would strip Liberty of half its voting rights, the Liberty said in its complaint.

``The action is preposterous,'' IAC said today in a statement. ``This action is a desperate sideshow, designed to exert pressure on the board and management of IAC.''

Both companies filed lawsuits last week over IAC's plans to split. IAC alleged in a Jan. 23 filing that Liberty threatened to block the breakup unless the deal was structured to give it control of the new companies. Liberty sued the next day, accusing IAC of attempting to wrest control of the companies and dilute Liberty's voting power.

Voting Rights

Diller controls the voting rights of all of Liberty's IAC shares through a proxy agreement and has said he would exercise those rights in favor of the spinoffs.

Liberty yesterday revoked that control and delivered a new stockholders agreement that removes Diller, Warner Music Group Chief Executive Edgar Bronfman Jr., fashion designer Diane Von Furstenberg, Alan Spoon, Victor Kaufman, Arthur Martinez and Steven Rattner from the board. Von Furstenberg is married to Diller. Malone is also on the board.

IAC rose 30 cents, or 1.2 percent, to $25.47 at 10:40 a.m. in Nasdaq Stock Market composite trading. Liberty Interactive, the tracking stock for QVC and other Liberty shopping units, gained 19 cents to $15.61. IAC declined 6.5 percent this year through yesterday, compared with Liberty's 19 percent drop.

Spinoff Proposal

Diller was contractually obligated to vote against the spinoff proposal, Englewood, Colorado-based Liberty said in the new complaint. Instead, he became ``its chief proponent and architect,'' the company said.

Diller didn't return telephone calls seeking comment. Liberty spokesman John Orr declined to comment.

In addition to board changes, Liberty added new rules to IAC bylaws prohibiting any director or officer of the company from authorizing a spinoff, sale or other disposition of any line of business worth more than $10 million without the approval of the entire board.

Diller plans to split IAC into five publicly traded companies. The new companies would have a single-tier voting structure, diluting Liberty's voting interest to 30 percent. Liberty argued that the spinoffs should mirror IAC's current dual-class voting structure, thus giving Liberty about 62 percent of the voting power in the new entities.

IAC said in its suit that its board, including Malone and another Liberty representative, unanimously approved the breakup in November.

Expansion

Under Diller, IAC has expanded to include more than 60 brands since he purchased a 20 percent stake in Silver King Communications in 1995. Silver King was controlled by Malone's Tele-Communications Inc., the nation's largest cable company at the time.

During the past 12 years, Diller bought USA Networks, travel site Expedia and other brands, changing the name of the parent company several times as his emphasis changed and he sold or spun off units.

Diller built the current IAC in a series of deals from 2002 to 2004 after selling USA and other cable channels to Vivendi and buying Ask Jeeves Inc., now Ask.com, in 2005 for $1.96 billion. In 2006, he started a programming unit to acquire and develop Web sites that derive revenue from advertising.

Diller said in November that it was the size and complexity of managing so many brands that drove the breakup.

In addition to HSN and Ticketmaster, IAC would be split into the Interval International vacation timeshare service, LendingTree mortgages and a new IAC, which would include the Ask.com search engine.

The case is LMC Silver King Inc. v. Barry Diller, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Sophia Pearson in Wilmington, Delaware Spearson3@bloomberg.net; Oliver Staley in New York at ostaley@bloomberg.net.

Last Updated: January 29, 2008 10:48 EST