Barry Diller is stepping down as chief executive of IAC/InterActiveCorp, the company said, adding it had bought out one of its largest shareholders, John Malone's Liberty Media Corp.

IAC said on Thursday that Liberty had sold its entire equity stake in IAC, worth $368 million, in exchange for $220 million in cash and the Evite and Gifts.com businesses. The online businesses will become part of Liberty's Interactive unit.

IAC shares were up 2.5 percent in late morning trading as some investors bet on further transactions which could boost the stock.

Liberty's stake had included 60 percent of voting rights of all classes of IAC stock, which had been represented by Diller -- a long-time business associate of Malone, the cable television pioneer.

The two media moguls fell out in a 2008 court case over how Diller used Malone's voting rights in IAC.

Diller, 68, will remain as chairman and senior executive, while the company has appointed former Match.com Chief Executive Greg Blatt, 42, to be IAC's new chief executive.

It's been clear to me for some time that this company needs a full-time, aggressive and aspirational executive in the CEO role, said Diller, adding that he's not going anywhere.

Following the transaction, Diller's voting rights will be reduced to 34 percent -- still the largest individual voting stake in the company.

IAC said that Diller has been granted the right to increase his voting stake to around 41 percent within the next nine months -- which would give him more control of the business.

The transaction effectively ends a major part of a 17-year business engagement between Malone and Diller that began when Diller joined Silver King Communications.

Both men remain on the boards of several companies that were spun off from IAC in 2008, including Ticketmaster, now part of Live Nation Entertainment.

While Diller has always said he remains good friends with Malone, there was more evidence of the tensions that can arise in business when Diller suddenly stepped down in October as chairman of Live Nation and was replaced on an interim basis by Malone.

While I'll continue my association with Dr. Malone in Expedia, and as significant shareholders of the multiple spun-off companies, Liberty's exit from IAC is a turning point, Diller said in a statement.

Lazard Capital analyst Barton Crockett said the improving relationship between Liberty and IAC is important because it could allow IAC to potentially exchange its 24 percent stake in Expedia, which is worth around $1.9 billion on a tax free basis. This now looks more likely, he said in note to clients.

IAC owns Web businesses including search businesses like Ask and Citysearch and dating sites like Match.com and Chemistry. It has also announced plans for a joint venture with its Daily Beast media site with weekly print magazine Newsweek.

IAC's shares are up around 35 percent over the last 12 months, significantly outperforming the S&P 500 index. The shares were up 72 cents to $29.44 in late morning Nasdaq trade on Thursday.

(Reporting by Yinka Adegoke; Editing by Tim Dobbyn)

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