IAC/InterActiveCorp. (NDAQ: IACI) shares plunged today after the company announced that it had lost $369.9 million during the fourth quarter due to higher taxes, difficulty in its mortgage referral unit and costs associated with the proposed spin offs of its five business segments. The news has disappointed many shareholders, but underscored the need for the planned spin offs to take place in order to unlock value for shareholders and increase the performance of the company’s individual units.

“There is good news and bad news this quarter — the mix of which is another reason why our previously announced plans to reorganize IAC into five independent public companies makes more and more sense,” said CEO Barry Diller. However, some are beginning to question his credibility after losses continue to pile up and shareholder sentiment is quickly turning against him. One analyst went so far as to say that “there’s probably no momentum to maintain Barry Diller in his current role”.

IAC proposed spinning off four of its divisions to create five independent companies back in November of last year. The spin offs would include its HSN home shopping network, Ticketmaster ticketing service, Interval time-share business, and LendingTree mortgage referral unit. All of the remaining assets would be kept under the current IAC business segment. The results today only confirmed, in many eyes, that such drastic actions needed to be taken in order for the companies to compete. A separation would allow for better management incentivization, easier access to capital and improved operating efficiencies.

Unfortunately, there are many barriers that still remain before any splitup can occur. First, the company is involved in ongoing litigation with Liberty Media, who is attempting to clock the breakup unless the deal is structured to give them control of the new companies. Liberty currently holds 30 percent of IAC and 62 percent of its voting power. Liberty claims that Diller, who controls the voting rights of Liberty’s IAC shares through a proxy agreement, is contractually obligated to vote against the spin off that it opposes because its own stake would be further diluted.

IAC is also facing problems with its LendingTree division, which was forced to write down the value of its goodwill and intangible assets by over $475 million amid continuing difficulties in the mortgage markets. Many believe that any sale of this division while the mortgage markets are depressed would result in less-than-adequate premiums; after all, why sell when the segment is trading at a historic low? IAC also wrote down the value of its entertainment unit by over $57 million as the company sold fewer Sally Foster products and coupon books.

In the end, IAC still has many issues to face before it can even consider spinning off its various business segments. In addition to a legal battle, the company must work to improve profitability in its segments in order to lift the potential valuations of these units and show that they can remain a going-concern as independent companies. After all, once a new company’s price-to-earnings ratio is set at its initial offering, it’s a lot harder to increase in the future even with spectacular results. Combined, these factors make IACI a stock worth watching!

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The AOL-TimeWarner merger never was a match made in heaven, but now they may be preparing to divorce. Time Warner Inc. (NYSE: TWX), parent company of the two divisions, announced a broad restructuring plan today that would separate AOL’s internet-access business and potentially reduce its holdings in the company’s cable affiliate. The news comes after the company posted somewhat disappointing earnings - driven by cable television - and guided lower for the year. Shares moved up, however, on news that the company may finally be ready to undergo the drastic restructuring that it so desperately needs.

Chief executie Jeff Bewkes, who assumed his post earlier this year, laid out his turnaround plan alongside Time Warner’s earnings this quarter. The new plan calls for a separation of AOL’s internet-access business, a reduction the firm’s 84% stake in Time Warner Cable Inc. and aggressive cost cutting measures across the board. The news comes after the company reported that its fourth quarter net income slid 41% (due to gains last year), but met expectations with the help of blockbuster hits “Harry Potter” and “I Am Legend”. Meanwhile, the company’s stock sits between its 52-week highs and lows as investors are again preparing to wait.

Perhaps the most interesting portion of Time Warner’s turnaround plan is the restructuring efforts surrounding AOL in particular. Many believe that this could mean a sale of spin off of AOL’s internet-access business, which has been losing customers and seeing lower revenues as it continues to drop its subscription fees. It could also be a precursor to a merger with another online company in order to make it more competitive against rivals Google and the new “YahooSoft”. Others believe that Time Warner may be leaning down its AOL business in order to encourage a bid, fresh after Microsoft’s blockbuster bid for Yahoo. Perhaps a strategic acquisition or two would make it a key player worth a second look by Google or others.

In the end, Time Warner’s restructuring is long overdue since its failed merger all those years ago. It will be interesting to see how Bewkes takes action to turn around the troubled company and restore it on a path of profitability. Combined, these factors make TWX a stock worth watching!

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E*Trade Financial Corporation (NYSE: ETFC) shares rose today after insiders revealed a sharp increase in their holdings of the troubled online brokerage. The stock is more than 80% off of its highs primarily as a result of its subprime exposure, which led to speculation that it may be forced to shut its doors. In reality, the brokerage had plenty of liquidity and no real problems with its portfolio other than a write-down. Unfortunately, the speculation itself led to a very real exodus of its clients to supposedly “safer” brokers. The company has since unleashed an impressive turnaround that has many market participants bullish on the stock - including insiders!

E*Trade insiders began accumulating shares at an impressive rate. Ten insiders, including its chairman and acting chief executive, purchased 474,761 shares in the company last week alone. Notably, seven of these insiders made the purchases through open market transactions - that is, they purchased stock like anyone else with their own cash. The bulk of the recent purchases came after the company announced its turnaround plan, indicating a strong internal confidence in the plan they’ve laid out for the franchise. And so far, things seem to be paying off as shares have made a slight recovery off of their lows.

E*Trade’s turnaround plan hinges on its ability to regain customer confidence. The brokerage ran its annual superbowl ad this year to inspire such confidence, proclaiming that it is opening 1,000 new accounts daily. The fact that so many new customers are arriving and that they could afford that superbowl ad may be just what people need. In the end, its the clients that make the company, and if they can hit their targets, then there shouldn’t be any problems ahead. Institutions have also begun to buy into the turnaround as Maybach Financial added the company to their watchlist, and many more are sure to follow.

These factors make E*Trade a compelling buy at these levels. The brokerage has a book value of $6.13 per share while trading at only around $5.00 per share! Moreover, if we assign an industry multiple to this company (assuming it can turn itself around), we’d find a low end valuation of around $10.00 per share - roughly double where it is now! Opportunities like this one are found in companies that were beaten down on fear where very little was affected fundamentally. This has made the stock a compelling fundamental play for many investors at these levels.

In the end, if E*Trade can regain its customer base, then it is essentially right back where it started but for a lot cheaper than the write-down warranted. Insider buying is indicating that many are confident in a turnaround while 1,000 new accounts per day is certainly a point worth considering. Combined, these factors make ETFC a stock worth watching closely!

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