Berlusconi's businesses flourish in struggling Italian economy

In an Italian economy that has stumbled into recession, the businesses of the country’s media mogul leader, Premier Silvio Berlusconi, have been a rare bright spot.

Their strong performance, led by Mediaset SpA, Italy’s largest private broadcaster and the jewel in Berlusconi’s crown, recently produced a huge windfall.

With the April sale of a 16.7% stake in Mediaset – after the company’s shares had risen steadily for months – the premier netted a cool €2.1bn, figures released by Berlusconi holding company Fininvest showed.

Since he started the group with construction projects in Milan in the 1960s, Berlusconi’s fortune has ballooned to an estimated €9.81bn, according to Forbes magazine, which placed the Italian premier 25th on its global rich list this year.

Mediaset – which includes three national channels, Italy’s market leader in advertising, Publitalia SpA, and a 52% stake in Spain’s top broadcaster Telecinco SA – is where the serious money has been made.

And though Berlusconi has cashed in on Mediaset’s success, he is not about to cede control over it.

Fininvest maintained a 34.3% share in Mediaset, giving it veto rights over decisions about mergers or the direction of the company – decisions that need a two-thirds majority for approval under Italian corporate regulations. The premier’s remaining stake is worth almost €4bn.

Berlusconi also owns 35.2% of financial services company Mediolanum SpA and has a 50.2 stake in Italy’s largest publisher, Arnoldo Mondadori Editore SpA, data from stock market regulator Consob show.

The companies are grouped in the unlisted holding company Fininvest SpA, which said its profitability has more than quadrupled since 1996, the year Mediaset and Mediolanum were listed on the Milan bourse.

The premier said the sale of the Mediaset stake was in line with the company’s policy to “create value, ensure growth dividends and increasingly open itself to the market”.

But the company’s current managers, including Berlusconi’s eldest daughter Marina, have offered no hints about how the money will be spent. “We will evaluate with the greatest calm where and how to use it,” she told the newspaper Corriere della Sera in a rare interview shortly after the sale – a position that still stands, Fininvest said.

One possibility, according to analysts, is expansion outside Italy, including the possible purchase of a network in Eastern Europe.

Meanwhile, the company continues to perform well in Italy. A report by Citigroup last month described Mediaset as ”one of the best positioned among the European broadcasters for longer-term revenue growth,” pointing to the company’s ability to attract viewers and contain costs, as well as the strength of the advertising market.

In the first quarter of 2005 Mediaset net profit rose to €199m from €157m for the same period in 2004.

Net profit for 2004 stood at €549.6m, under newly adopted international accounting standards. That was up 10% from the €500.2m the company reported under Italian accounting standards the year before.

The digital venture was the company’s response to Rupert Murdoch’s satellite TV network Sky Italia, which since 2002 has offered channels including movies and news in Italy but has concentrated resources on soccer coverage – one of Berlusconi’s traditional strong points.

One potential concern for Mediaset is politics, with analysts raising the possibility of more regulation for Berlusconi’s businesses if Italy’s centre-left opposition wins in national elections next year.

Berlusconi, who served a brief, eight-month term in 1994, was re-elected premier in 2001. In that position he has direct or indirect control over 90% of Italian broadcasting through Mediaset and state broadcaster RAI.

The centre-left may try to dilute his dominance over the Italian television market, which it says represents a conflict of interest while the 68-year-old remains in politics.

Berlusconi denies that, saying all decisions he makes as premier have to be ratified by a democratically-elected parliament, and pointing out that he stepped down from company management positions before entering politics.

In July, Italy’s parliament passed a law stating that holding public office is incompatible with running a company but not owning it – a measure the opposition described as toothless.

Among the close-knit group that took over from Berlusconi are long-time friend and Mediaset Chairman Fedele Confalonieri, and Berlusconi’s children, who like Murdoch, the premier has long groomed to inherit the family companies.

Marina, 38, and Pier Silvio, 36, both children from Berlusconi’s first marriage, sit on the boards of several Fininvest companies. Barbara, a daughter from his second marriage now aged 20, was elevated to the Fininvest board in 2003, a few months after she finished high school.

In December Berlusconi handed over the reins at top soccer club AC Milan - more valuable to him for its image in this soccer-loving country than for its economic worth – to another longtime friend, Adriano Galliani.

An opposition victory next year has looked more likely since the centre-right government was thrashed in regional elections in April, a defeat largely attributed to discontent the economy, which slipped into recession in the first quarter.