MILAN (Reuters) Italy's biggest private broadcaster Mediaset said it would cut costs to shore up profits in the face of falling advertising sales in crisis-hit southern European markets, as it eyes a bigger stake in Dutch TV producer Endemol.
Mediaset's core domestic advertising market is shrinking as the euro zone sovereign debt crisis engulfs Italy, hurting economic growth and bringing to an end the government of Italian Prime Minister and Mediaset controlling shareholder
Silvio Berlusconi.
Berlusconi confirmed on Tuesday he would resign after a new budget law is approved in parliament.
Mediaset's shares fell 2.9 percent on Tuesday, bucking a higher Milan stock market, as Berlusconi lost his majority in parliament and later said he would step down -- a development seen as negative for the stock, at least in the short-term.
Analysts say in his role as prime minister Berlusconi had potential influence over media sector policies, including the management of Mediaset's key rival, state-owned broadcaster RAI.
Mediaset forecast on Tuesday that sales at its free-to-air channels would fall 3 percent this year, in line with the first nine-months, when operating profit dropped by around 30 percent.
Chief Financial Officer Marco Giordani told analysts during a conference call that the group would cut costs between 3 and 5 percent next year in a bid to shore up profits.
Giordani confirmed a 3 percent increase is expected in television costs for 2011, when net profit is expected to be lower than 2010.
Mediaset had already warned that weak advertising was hurting profits and the stock has lost more than 40 percent this year, largely underperforming Italy's blue-chip stock index.
The group's other key market is Spain, where the economy is also suffering due to the worsening debt crisis.
Giordani said the broadcaster's generous dividend policy remained unchanged and gave a higher debt target of 1.8 billion euros at the end of 2011.
HAPPY WITH ENDEMOL OFFER
Giordani expressed satisfaction with an offer that Mediaset had put together for debt-laden Dutch TV producer Endemol, but did not make clear whether it had been submitted.
Endemol, famous for the "Big Brother" TV format, is in the process of restructuring its 2.8 billion euros ($3.87 billion) of loans after failing to meet banking covenants. Lenders have agreed to waive this covenant breach until mid-November.
Mediaset owns a third of the Dutch company after a 2007 buyout carried out with Goldman Sachs Group Inc's Capital Partners and Endemol's co-founder John de Mol's investment firm Cyrte.
"We are very happy ... we were able to structure an offer for Endemol which is providing a quick solution," satisfying the creditors' needs and offering Endemol the support of Mediaset, Giordani said, adding that Endemol's creditors had the last say.
Time Warner Inc has made a non-binding offer for Endemol which a source close to the restructuring said values the debt-burdened Dutch TV producer at 1 billion euros.
Giordani said Mediaset would invest further in Endemol only in the presence "of a clear strategy for the group, a clear involvement of Mediaset" and only if Endemol remained independent.
Mediaset's nine-month revenues were basically flat at 3.04 billion euros and net profit fell more than 13 percent to 166.6 million euros, in line with forecasts.
(Reporting by Valentina Za, editing by Gerald E. McCormick)
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