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Italy's Mediaset Stock Drops Amid Founder Silvio Berlusconi's Uncertain Future

Silvio Berlusconi
Giorgio Cosulich/Getty Images
Silvio Berlusconi

"With the waning of Berlusconi, Mediaset will face a tougher environment," says one analyst.

ROME – Mediaset shares fell Friday in part on investor fears that founder Silvio Berlusconi, set to face a year of house arrest after a Supreme Court verdict Thursday, may no longer be able to offer the company “political protection” as in the past.

At mid-day, the stock was down 3 percent.

Late Thursday’s Supreme Court ruling was the big story in Italy: justices upheld the guilty verdict in the media mogul’s tax fraud and false accounting trial and confirmed a one-year sentence of house arrest. But a lower court was ordered to reconsider the five-year political ban that could have ended the political career of Berlusconi, a three-time prime minister.

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Mediaset also reported its latest earnings late Thursday, showing a 30 percent drop in profits that was in line with analysts’ estimates. It also said its cost-cutting plans were ahead of schedule.

But as the stock retreated to $4.27 (€3.26) in heavy trading, analysts said the driving force was connected to worries that Berlusconi – who has given most day-to-day control over the company to his 44-year-old son, Pier Silvio Berlusconi – would no longer be able to give the company the kind of political support he has in the past.

“Thursday’s ruling has been criticized by all sides, but one indisputable take-away is that Berlusconi’s political muscle is not and will not be what it used to be,” said Javier Noriega, chief economist with Hildebrant and Ferrar in Milan.

Other analysts agreed: The political landscape "clouds substantially" for Mediaset with the Berlusconi issues, according Sanford C. Bernstein analyst Claudio Aspesi. "The coalition between [Berlusconi's party] and [the center-left party of Prime Minister Enrico Letta] will be under enormous strain and early elections become more likely.

"With the waning of Berlusconi, Mediaset will face a tougher environment," he concluded.

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For Mediaset, "good results will likely be overshadowed by the courts upholding Berlusconi's conviction for tax fraud," said UBS analyst Tamsin Garrity in a report entitled "Results beat but a sideshow - focus turns back to Berlusconi." "There is no technical or operational impact on Mediaset, however resultant political instability in Italy will impact the market and sentiment."

Among the challenges in store for Mediaset, according to analysts: the company could see less government advertising business and more regulatory scrutiny going forward.

On Friday, the company tried -- delicately -- to put distance between it and its troubled founder. COO Marco Giordani said in a televised interview that Berlusconi no longer had any influence over the company, and chairman Federe Confalonieri said “nothing would change” at Mediaset as a result of Thursday’s verdict.

Even figuring in Friday’s stock market losses, Mediaset shares have early tripled from their all-time low of $1.52 (€1.16) in December mostly due to recovering advertising sales amid an economy that has finally seen some resilience over the last several months.

The company also announced Friday it would invest in a series of biopics, including one on Rudolph Valentino, Italy’s first acting superstar, who died in 1926.

Georg Szalai in London contributed to this report.

Twitter: @EricJLyman