DILLER DILEMMA
Barry Diller became the first media mogul to get pinched in the new credit crisis, backing out of borrowing more than $3 billion for a planned stock buyback deal because it was too costly.
The demise of cheap money in the aftermath of the housing industry’s collapse and resulting washout of junk lending hit yesterday at Diller’s online travel firm, Expedia, which was primed for a major stock buyback in two weeks of up to 116.7 million shares.
Shares tumbled 9 percent on news of the canceled buyback. Traders dumped shares at twice the rate of the usual daily volume, wiping off $2.68 a share to close at $26.71.
Diller’s own personal holdings in Expedia lost $14.9 million in value after the rout.
Investors had relished the stock’s more than 106 percent gain in the past 12 months, and saw shares hovering near records in anticipation of the stock repurchase.
Diller had planned to buy back about 8 percent of Expedia’s outstanding shares for between $27.30 to $30 each, or about $3.4 billion.
Now, Diller will scale back his stock repurchase by about 80 percent and will pay about $720 million for a smaller repurchase.
Expedia had said the buyback, using borrowed cash, would swell the company’s debt by nearly eightfold to more than $4.07 billion.
That debt burden, however, prodded Standard & Poor’s to lower Expedia’s rating to junk status, instantly upping Diller’s borrowing costs.
Diller, who is chairman, said the interest rates Expedia would have to pay have soared too high in recent weeks to make his financing “acceptable.”
The extra interest being demanded by lenders on top of risky corporate borrowing has nearly tripled in recent weeks to an added 3.37 percent risk premium to the already high yields of junk bonds.
“The terms available to us in the current debt market environment were simply unacceptable,” Diller said in a statement.
At those higher rates, Expedia could pay tens of millions extra interest costs each year.
Nearly two dozen firms have backed out of major debt offerings in recent weeks due to soaring extra interest they’d have to pay on junk corporate bonds.
This month such bond offerings have crashed to their lowest levels in 13 years and could cut deeply into Wall Street’s fees.
Diller, 65, is also chairman of online conglomerate IAC/Interactive, which two years ago spun off Expedia. Forbes estimates his personal wealth at more than $1.4 billion.
Expedia also said yesterday it expects second-quarter revenue, enriched by a 14 percent gain in transactions, to beat Wall Street’s expectations of $647.7 million.