Mediaset Cost Cuts Overshadowed by Berlusconi Fraud Conviction

Mediaset SpA, the broadcaster controlled by Silvio Berlusconi, said a cost-cutting plan is ahead of schedule, even as the news was eclipsed by the former Italian prime minister’s conviction for tax fraud.

“Good results will likely be overshadowed by the courts upholding Berlusconi’s conviction,” Tamsin Garrity and Jerome Sterckx, analysts at UBS, said in a note to investors today. “There is no technical or operational impact on Mediaset, however resultant political instability in Italy will impact the market and sentiment.”

Berlusconi’s penalty has yet to be clarified as his prison sentence will probably be converted to house arrest or community service. A ban on holding public office was ordered to be reviewed by a lower court.

The ad-sales trend in Italy and Spain last month was slightly better than in the first half, Milan-based Mediaset said in a statement yesterday. The company, which competes with Rupert Murdoch’s pay-TV provider Sky Italia, predicted it will reach its target ahead of schedule in a three-year plan to 2014 to cut 450 million euros ($595 million) of costs, creating “a further significant improvement” in cash generation this year.

Mediaset fell as much as 4.3 percent and was down 2.4 percent at 3.29 euros as of 11:04 a.m. in Milan. The stock price has more than doubled this year.

“The improvement in advertising trends and opportunity for further cost efficiencies will be taken well by the market,” Ian Whittaker, a London-based analyst at Liberum, said by e-mail.

Partnership Talks

Second-quarter sales declined 11 percent to 905.3 million euros, according to the statement released after the market closed. That compared with the 903 million-euro average estimate of six analysts compiled by Bloomberg. Operating costs fell 9.4 percent to 567.4 million euros.

Vice Chairman Pier Silvio Berlusconi said on July 2 the company’s online advertising revenue will reach 100 million euros “very soon” and that a July advertising sales increase would break 22 consecutive months of declines.

To counter the intensifying challenge from Sky Italia, Mediaset has held talks with Al Jazeera and French pay-TV company Canal+ about a partnership.

“There is nothing about a potential partner for our pay-TV,” Mediaset Chief Financial Officer Marco Giordani said during a conference call with analysts yesterday. The company will continue alone with its pay-TV service, he said.

Premium pay-TV revenue jumped 7.7 percent to 280.2 million euros in the first half.

Bond Sale

Mediaset’s board approved a plan to sell bonds to raise as much as 500 million euros, according to the statement.

The company is “well on track to hit 2014 net debt targets, which will help with the bond financing,” Sarah Simon, an analyst at Berenberg, said by e-mail.

Mediaset’s second-quarter net income fell 36 percent to 20.8 million euros. Its first-half advertising revenue in Italy dropped 17 percent to 1.06 billion euros.

The Italian television advertising market shrank 19 percent in the first quarter, according to researcher Nielsen.

The broadcaster reported the first annual loss in its history in March because of the weak Italian market and impairment charges.

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