As Diane Von Furstenberg’s husband, it should come as little surprise that Barry Diller is a dedicated follower of fashion. Two years ago, he opted for the wheeze of the moment among investment bankers: he split his internet conglomerate into IAC/InterActiveCorp and Expedia during a mini-wave that included similar moves by Viacom and Cendant. Now he seems to be getting in on the leveraged buy-out boom, without actually going private.
Expedia, where Mr Diller remains chairman, has joined other public companies trying to take advantage of cheap, plentiful debt to juice their equity returns through a leveraged recapitalisation. The online travel company’s proposed $3.5bn buy-back could retire about 40 per cent of the outstanding equity.
That seems to make sense all round. Shareholders get an option to sell at least a portion of their stakes between $27.50 and $30 a share, a premium of as much as 15 per cent to Monday’s close. If, instead, they are comfortable with net debt that an analyst at Susquehanna estimates will hit 5 times this year’s earnings before interest, tax, depreciation and amortisation, and think that Expedia’s valuation will rise, they can stay for the ride. In spite of slower growth in recent years, the travel company is a reasonable risk. After all, it is slightly contra-cyclical, getting more distressed inventory from airlines and hotels to sell if there is an economic downturn.
Mr Diller and Liberty Media – which is not planning to sell any of its sizeable stake in Expedia – meanwhile get to increase their combined stake to as much as 45 per cent without putting in more equity. There are two potential negatives. If big institutional holders such as Legg Mason do not sell, liquidity could fall sharply. And Mr Diller/Liberty will end up with greater dominance. But since they already control the business through a super-voting share structure, that is no deal breaker.