(Bloomberg) -- A jury may decide how much the dating app Tinder LLC was worth when it merged with rival Match Group Inc., which sparked a legal fight with media mogul Barry Diller over $2 billion in stock options.
The dispute, set for a trial that starts Monday in New York, began with a 2018 state court lawsuit filed by Tinder co-founders Sean Rad and Justin Mateen. They accused Match and its controlling investor, Diller’s IAC/InterActiveCorp., of cheating them by undervaluing the company at $3 billion when it was actually worth $13 billion.
While Tinder’s “swipe right” and “swipe left” system to vet prospective dates made it one of the hottest mobile apps of the past decade, the suit revealed acrimony within the companies that helped fund its development. IAC and Match said Rad destroyed evidence and paid ex-workers to back his lawsuit. Rad accused them of covering up allegations of sexual misconduct by former Match Chief Executive Officer Greg Blatt, who has filed a separate defamation suit.
The prospect of an “unpredictable” trial outcome creates risks for Match, which has agreed to pay IAC’s liability in the case, said Tom Claps, a litigation analyst with Susequehanna Financial Group in New York. The Tinder plaintiffs are seeking more than $2 billion in damages, and Match had about $236 million in cash as of June 30, Claps said.
If Blatt, Diller and Rad testify as expected, “there is the potential for trial fireworks that could lead to negative headlines for IAC/MTCH and could cause them to strongly consider a settlement,” Claps wrote in a note to clients. That probably will lead to a settlement of $300 million to $700 million before the jury reaches a verdict, the analyst said.
“Leaving this to a jury is inevitably a bit of a roll of the dice” for Match, said Matthew Schettenhelm, a litigation and government analyst with Bloomberg Intelligence. “With such large sums potentially at stake, it ultimately may not be a risk the company wants to take.”
IAC and Match hired well-known trial lawyer Bill Carmody, who helped WeWork founder Adam Neumann secure a $480 million settlement from SoftBank Group Corp., while the Tinder founders are represented by Orin Snyder, who The Verge once called “the deadliest trial lawyer in tech.”
Independent Valuation
The plaintiffs, including other Tinder executives and early employees, say they were granted options in 2014 by IAC and Match that entitled them to more than 20% of the company. Because Tinder wasn’t publicly traded, IAC and Match were required to hire investment banks to estimate its value on four specific dates: May 2017, November 2018, May 2020 and May 2021.
According to the suit, IAC and Match engineered a lowball valuation of the company by providing false information to the banks, and then merged Tinder into Match hours after the first valuation in 2017, terminated the options agreements and cancelled the additional payment dates.
“The evidence of how these companies corrupted the valuation of Tinder is shocking,” said Snyder, the lawyer for the Tinder founders. “Defendants have tried every trick in the book to avoid a jury for over three years. It is now time for them to be held accountable for their misconduct.”
Match declined to comment. In court filings, IAC and Match said the banks determined Tinder’s value based on information from both sides and that the plaintiffs reaped $700 million when they exercised their options, including $400 million for Rad. IAC and Match said the former Tinder executives are bitter because they cashed out too early.
The case is Rad v. IAC/InterActiveCorp, 654038/2018, Supreme Court of the State of New York (Manhattan).
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