Mediaset Stock Tumbles in Milan Amid Crisis Worries

5:17 AM PST 08/26/2013 by Eric J. Lyman

The shares have performed well this year, but fell dramatically on Monday on fears of a government crisis sparked by company founder Silvio Berlusconi.

ROME – The stock of Mediaset, the cinema and TV giant controlled by former Italian Prime Minister Silvio Berlusconi, fell sharply in early Monday trading, and trading was temporarily halted amid the drop of more than 6 percent in the first two hours of trading.

Analysts said investors were worried about the looming government crisis sparked by the Italian Supreme Court’s decision to uphold Berlusconi’s conviction for tax fraud and false accounting. The ruling requires Berlusconi to serve a year of house arrest and to face a possible ban from politics.

Berlusconi’s allies have threatened to pull their support for the government, which would force Prime Minister Enrico Letta to resign.

Those worries of a government collapse have sent ripples that affected the Italian and other European stock markets. Mediaset shares fell 6.4 percent in a little over two hours on Monday before trading was halted. After trading re-opened, they dropped slightly further before stabilizing.

As of mid-day, Mediaset was trading at €3.13 ($4.10), down from €3.36 ($4.40) at Friday’s close, and its recent high of €3.48 ($4.56) from earlier this month. Monday’s drop reduced Berlusconi’s personal net worth by an estimated €270 million ($354 million).

Mediaset's stock was the worst-performing stock on the Italian Stock Exchange’s blue-chip index on Monday. That is in contrast to the shares' recent performance: They have still risen by more than 250 percent since their all-time low of €1.16 ($1.52) in December.

“It’s going to get worse before it gets better [for Mediaset shares] unless the political crisis is straightened out,” said Javier Noriega, chief economist with Hildebrandt and Ferrar in Milan.

It is not clear how the crisis will resolve itself. Parliament has tentatively scheduled a vote on Berlusconi’s fate for Sept. 9, and Letta and his allies have vowed not to be “held hostage” by Berlusconi’s threats. But the chances are slim that Letta would have the parliamentary backing to stay in power without the support of Berlusconi’s coalition.

Twitter: @EricJLyman

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