Victory for InterActiveCorp in Tax Dispute With Vivendi
nytimes.com
July 2, 2004
By RITA K. FARRELL
WILMINGTON, Del., July 1 - A Delaware judge has ruled in favor of InterActiveCorp, run by Barry Diller, in a tax-related dispute with a partner, Vivendi Universal.
InterActiveCorp has estimated that Vivendi is obligated to pay it $600 million in tax payments. In a 49-page ruling made available on Thursday, Vice Chancellor Stephen P. Lamb of the Delaware Chancery Court said that when the sides formed the partnership, Vivendi Universal Entertainment, in May 2002, the section on taxes was "clear as day."
"The plain meaning of the partnership agreement provides for mandatory annual tax distributions equal to allocations of taxable income," the judge said, adding that Vivendi's 93 percent control of the partnership was subject to certain "consent and veto rights" of the minority partners. InterActiveCorp controls 5.4 percent of Vivendi Universal Entertainment, or V.U.E., and Mr. Diller controls 1.5 percent.
Vivendi said on Thursday that it would appeal. At a hearing in May, Vivendi argued that the partnership was obliged only to distribute income to InterActiveCorp, not to pay taxes on the income.
Vivendi's lawyers said that InterActiveCorp was "double dipping'' and that its April 2003 lawsuit was "a thinly veiled strategy to create litigation risk for Vivendi" while it was completing negotiations for a merger of V.U.E. with the NBC unit of General Electric. The lawyers said that the tax section in the partnership agreement was unclear and contained unintentional errors.
Vice Chancellor Lamb rejected Vivendi's claims.
"In a contract dispute, the court will rely solely on the clear, literal meaning of those words" and not on the intent of the parties, he said, adding that Vivendi's assertion that there were contradictions in the agreement "simply does not hold water."
According to court papers, Victor Kaufman, InterActiveCorp's vice chairman, said in December 2001 at the formation of the partnership, that "the cash dividends that we're receiving start at over $60 million a year and actually get up to over $100 million towards the end, so that the aggregate sum well exceeds the tax that we're going to pay on all the instruments," after 20 years.
InterActiveCorp, based in New York, owns Internet operations like Ticketmaster, the Home Shopping Network, Match.com and Expedia.
In return for transferring $11.7 billion of its entertainment assets to V.U.E., InterActiveCorp received $1.62 billion in cash, Vivendi agreed to retire its $7 billion holdings in shares of the predecessor USA Interactive, and certain preferred interests with a $2.5 billion face value. The tax payments on the preferred interests were at issue in the lawsuit. |
