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Jackpot Time For Silvio Berlusconi (Int'l Edition)


International -- Intl' Business: ITALY

JACKPOT TIME FOR SILVIO BERLUSCONI (int'l edition)

For Silvio Berlusconi, it's a typically clever deal. The partial sell-off of his huge media properties could help advance his political career, win him powerful new partners, reap a heap of cash--and leave the Italian tycoon and former Prime Minister calling the shots.

After months of secret negotiations, aides say, Berlusconi is ready to sell off a major chunk of his Mediaset media operations, which include three Italian national networks, a huge library of programming, and Europe's most modern film and television production studios. They are the crown jewels of his closely held Fininvest empire, Italy's largest private-sector group after auto giant Fiat. Ponying up $1 billion for a 20% stake in Mediaset will be German media baron Leo Kirch, South African industrialist Johann Rupert, and Prince Al-Waleed bin Talal, the 40-year-old whiz kid investor who happens to be the nephew of Saudi Arabia's King Fahd. An additional 25% or so of Mediaset may be purchased for $1.2 billion by a group of Italian banks.

VOTERS' CONCERNS. The losing bidder in these negotiations is Rupert Murdoch, who fielded a $3 billion offer earlier this year to take majority control of Mediaset. Berlusconi prefers to stay in the driver's seat. Although Fininvest CEO Fedele Confalonieri says that a public share offering planned for next year would leave Berlusconi with only a 30% to 35% stake in the media operations, that's more than enough to maintain effective control.

Diluting his stake also gives Berlusconi the chance to claim he no longer is absolute master of Italy's most powerful media group. Political opponents used his total control of three networks as a weapon in their successful attack to drive Berlusconi from office last December. The conflict-of-interest question won't go away, however. Although Berlusconi's Forza Italia emerged as Italy's largest political grouping last year, regional elections in May showed support was softening, thanks in part to voters' concerns about possible abuses of power by Berlusconi. "If Berlusconi thinks he has now tackled conflict of interest, forget it," says Mauro Paissan, the vice-president of the Italian Parliament's Oversight Commission. The deal to sell a stake in Mediaset, he says, "is a joke." Many commentators, however, still think Berlusconi's center-right coalition will be the strongest contender in the next national election.

Even if his political comeback proves difficult, Berlusconi will still profit from the cash he's raising in the sale. It will handily reduce Fininvest's $2 billion pile of debt and leave the company with the means--and the strategic partners--to expand in such hot new fields as pay-TV and cable television, where Italy is way behind the rest of Europe. "This isn't a good deal for Berlusconi, it's a terrific deal," says Andrea Azzimondi, Italy strategist at London CS First Boston.

Berlusconi's new co-owners in Mediaset pack a lot of muscle. Kirch is the most powerful force in German television, thanks to interests in Sat 1, the country's second-largest network, and key stakes in cable television. The Rupert family of South Africa owns Luxembourg-based Richemont, which controls tobacco group Rothmans International as well as luxury brands Cartier, Dunhill, and Montblanc. Cash-rich Richemont has been moving into media through acquisitions in European cable and pay-TV.

Kirch and Rupert, already partners with Berlusconi in other media ventures, could use Mediaset library's 120,000 hours of films, miniseries, and serials for their own outlets. And Mediaset's 18 Italian production studios can create programming for the partners.

The attraction is somewhat less clear for Saudi Arabia's Al-Waleed, a newcomer to media investments. The Saudi prince first made headlines in 1991, when he snapped up $590 million of convertible shares in Citicorp, a move which has made him the bank's largest shareholder. He has since bailed out Euro Disney and has invested heavily in Canada-based Four Seasons Hotel Corp.

Al-Waleed is known to have his eye on several big Italian industrial investments, including some planned sell-offs of state-owned industry. That may be why coming to the rescue of Italy's once--and very possibly future--Prime Minister could have a nice payoff down the line.

BERLUSCONI'S LATEST MOVE

THE DEAL Some 45% of Mediaset, Fininvest's media division, may be sold to outsiders. Assets include three networks and Italy's biggest ad agency.

THE BUYERS Prince Al-Waleed bin Talal, Richemont Group, and Kirch Group get 20%. Three Italian banks get an additional 25%.

THE PRICE Some $2.2 billion.

DATA: BUSINESS WEEKBy John Rossant in Rome


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