Can Berlusconi Untangle His Web?

Silvio Berlusconi, Italy's billionaire-turned-politician, is on a winning streak. In late March, the 57-year-old led a triumphant right-wing coalition to a spectacular victory in national elections. Then, on Apr. 16, his handpicked candidate landed a key post as head of the Italian Senate. If that weren't enough, the next day, Berlusconi's soccer team, AC Milan, won the Italian national championship for the third year running. Oh yes, and by the end of April, Berlusconi will almost surely become Italy's 53rd postwar Prime Minister.

But all the luck in the world won't quickly solve Berlusconi's biggest problem: how to erect a convincing Chinese wall between Berlusconi, the new leader of Italy, and Berlusconi, owner of the $7.2 billion media conglomerate, Fininvest Comunicazioni. If he can't come up with a watertight separation of interests, his new government could be hobbled from the outset.

LION'S SHARE. Of course, millionaires have come to power before, from John F. Kennedy in the U.S. to Britain's Harold Macmillan. But they had nowhere near the business breadth of the self-made Berlusconi. The three national television stations controlled by Fininvest divvy up the lion's share of Italy's $4 billion TV ad market. Its Milan-based Mondadori is Italy's largest book publisher and puts out a dazzling array of magazines, including the top newsweekly, Panorama. Fininvest sports Italy's largest supermarket and department-store chain, Standa, as well as fund-management groups, insurers, and professional athletic teams.

With so many interests, possibilities for conflicts are everywhere. Plans to privatize Italian pension plans, in the reform program of Berlusconi and his allies, would affect Fininvest's insurance and fund-management activities. The group's broadcasting holdings depend on government licenses and antitrust regulations. "The Berlusconi empire is all-pervasive, so it's an all-pervasive problem," charges Vincenzo Visco, a prominent member of the opposition Democratic Left Party.

Even before his political coup, Berlusconi had started to restructure his holdings. Franco Tat, who earned a reputation as a tough manager at Olivetti and Germany's Triumph-Adler, was brought in last October. Banks holding more than $2 billion in Fininvest debt were beginning to get nervous as Italy's worst recession since World War II slashed the company's bread-and-butter ad revenues. Goldman, Sachs & Co. chipped in with a plan to spin off a new company--Silvio Berlusconi Editore--grouping all of Fininvest's publishing interests.

Now, Fininvest faces much broader changes (table). The Goldman Sachs plan was ditched in mid-April in favor of a new fast-track public sell-off arranged by Milan's Mediobanca of 53% of Mondadori by mid-June. The deal could raise as much as $540 million. Company officials are also negotiating a spin-off of all or part of Standa, the 285-store chain Berlusconi picked up in 1989 for about $750 million.

"MORE TRANSPARENCY." Finding a way to distance Berlusconi from television, Fininvest's core business, is trickier. Current managers may oppose a Tat plan to unite all three Fininvest stations, plus the company's huge advertising interests, under a single corporate umbrella, for the moment code-named Big TV. If he does combine those ventures, say Fininvest executives, it could lead to a stock sale.

Such plans are a sharp shift for one of Italy's most secretive companies. Berlusconi was behind almost every decision, from corporate acquisitions to what TV game-show hosts should wear. But he has already given up operating control. Now, says Fedele Confalonieri, who replaced Berlusconi as Fininvest's chairman, it's a new deal for the group, with "more authority to managers, more transparency, and widespread ownership."

Will it be enough to convince Italians that their Prime Minister isn't mixing his public and private agendas? Probably not. That's why aides are looking at various plans, including putting Fininvest in the hands of a Berlusconi family foundation. But few think that would end the often-fawning treatment of Berlusconi by the media units.

"Berlusconi is aware of possible conflicts of interest," says Antonio Martino, the main economic strategist in Berlusconi's Forza Italia Party. "He has caught the virus of politics, and if it comes to choosing between his company and politics, he would rather give up his business." But until Prime Minister Berlusconi does take steps to sell off his holdings completely, the conflict-of-interest issue will not go away.

      Holding                     Annual sales    Disposition
      TV CHANNELS                    $2.3    Public stock offerings
      PUBLISHING                      1.2     Sell 53% stake to public
      SUPERMARKETS                    3.2     Negotiating a sale
      BROKERAGE, AND PROPERTY         0.4     Some to be sold
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