Berlusconi's Strategic Retreat

Silvio Berlusconi has long enjoyed a hammerlock on commercial television in Italy, first through Fininvest, his sprawling holding company, and since late 1994 through Mediaset, a spin-off from Fininvest that manages just the media interests of Berlusconi. But now, the tycoon, who no longer runs Mediaset day to day, is ready to weaken his hold on his creation. A public stock offering on the Milan Stock Exchange planned for June will lower Berlusconi's stake in Mediaset from 74% to less than 50% and raise an estimated $1.2 billion for the company.

Berlusconi is cutting back for two big reasons. With national elections looming on Apr. 21, the 59-year-old Berlusconi hungers for a second stint as Prime Minister. Watering down his media holdings could counter the conflict-of-interest charges that plagued his premiership in 1994. Much more important is Mediaset's need for funds to beef up its core commercial-TV business, where major changes are afoot.

SOCCER RIVAL. Suddenly, Berlusconi's empire is not the secure fief that it once was. New antitrust regulations in Italy could force the divestiture of one of Mediaset's three national television channels. Also, Vittorio Cecchi Gori, a deep-pocketed Tuscan businessman, recently acquired Tele Monte Carlo, a Monaco network that beams programs into Italy. Gori aims to turn TMC into a rival Italian network. In early March, Gori outbid both Mediaset and RAI, the state-owned TV network, for live broadcast rights to Italian soccer games.

Mediaset also needs a war chest to finance a fight against bigger and more aggressive predators on the European TV scene, such as Rupert Murdoch's British Sky Broadcasting and Germany's Bertelsmann. Although Mediaset is not involved in the battle over German digital TV, one of its major shareholders is Leo Kirch, the German media heavy now sparring with Murdoch. Kirch's Italian connection puts Mediaset firmly in the group opposed to Murdoch--who tried unsuccessfully to buy Fininvest's TV operations in 1994. Murdoch's group would probably enter the Italian market after Germany. "There's a colossal game being played out that will have a huge effect for the rest of Europe," says Ubaldo Livolsi, the Dow Chemical Co. veteran who now runs Mediaset for Berlusconi.

Berlusconi's move to being a full-time politician means Mediaset is no longer led by a man who even detractors acknowledge is a genius of the TV business. Will Berlusconi come back to work if he loses in April? "Speaking personally, I think Berlusconi has now totally dedicated himself to politics," says Livolsi. "But I'd be more than happy to have him return to the company." Mediaset shareholders would be happy to see him back, too, if the going gets really rough in Europe's turbulent media market.

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