Berlusconi adviser has float doubts

Morgan Stanley report expresses worries over Mediaset's dealings and accounting policies

Morgan Stanley, the lead international adviser to the pounds 3bn flotation of Mediaset, Silvio Berlusconi's TV and advertising empire, has expressed deep reservations about the company's financial policies in its prospectus.

The worries focus on methods that produced a huge rise in profits last year, Mediaset's cash position, depreciation of TV and film rights, inter- company dealings with parent Fininvest and a possible back-tax liability.

They emerge from a close reading of a report issued by Morgan Stanley's European Research Department, issued on 7 June, three days before the prospectus was approved by the Italian stock exchange commission.

The Independent on Sunday understands, however, that worries go wider following the arrest in mid-May of Alfredo Zuccotti, the Fininvest executive who provided the basic information for the prospectus. He is currently under house arrest in Italy.

Morgan Stanley was not available for official comment yesterday. But its private concerns have also been heightened by the testimony of two accountants from auditors Arthur Andersen, leaked to last week's L'Espresso news magazine, which suggested they were not fully aware of all dealings with Mr Berlusconi's sprawling offshore empire.

Last week, the Independent on the Sunday exposed the offshore web and the key part played by lawyer David Mills in setting up many of the firms. Mr Mills is the husband of Labour MP Tessa Jowell and brother-in-law of Barbara Mills, the Director of Public Prosecutions.

Morgan Stanley's research report was circulated to potential European investors and raised crucial warning signals in a rare showing of scepticism over a firm its corporate finance arm is sponsoring.

Apart from the risk that Mediaset may not be allowed to continue to run its three domestic TV channels, the report raises deeper questions. Essentially, it shows, in the words of one Italian banker, how Mr Berlusconi is attempting to "have his cake and eat it".

The flotation will not only raise more than $600m (pounds 390m), help his political career, and pay off Fininvest's debts but will also provide him with further opportunities for making money through inter-company dealings. It also leaves him in effective control, as Fininvest's stake will not fall below 47.9 per cent.

Mediaset's huge profit rise to nearly L455bn (pounds 200m) was, it points out, largely due to reductions in the depreciation and tax. It was boosted by the hiving off to Fininvest of doubtful debts and an extraordinary gain on the sale - again to Fininvest - of a contract with pay TV channel Telepiu. The report reveals that the interest in Telepiu - and Spanish firm Telecinco - may well be bought back by Mediaset at a big profit to Fininvest.

Also significant, in the light of Italian magistrates' inquiries into the secret offshore companies, is the conclusion that their use may lead to a large back-tax liability.

The prospectus indicates that could be in excess of L500bn (pounds 215m), more than a year's profits. This is covered by a Fininvest indemnity, but there is always the possibility that Mr Berlusconi might not pay.

The main offshore buyer of film and TV rights for Mr Berlusconi was a British Virgin Island company called Principal. It resold to other offshore firms, possibly including a Maltese firm, Summercast, to minimise tax.

In the run-up to flotation, however, arrangements were changed and Principal was no longer used. The Mediaset prospectus merely reveals that in December, 1994 another Maltese company, International Media Services, was formed to handle the buying, through unnamed "intermediary companies".

Meanwhile, the Milan investigation continues, with the focus on the Jersey company All Iberian, which was used - among other things - to provide the secret finance to partners in Telepiu. Italian investigators were in London last week to prepare for a judicial review over whether papers seized at the offices of Edsaco, of which Mr Mills is now a director, should be sent to Italy.

In Milan it emerged that Mr Berlusconi's criminal lawyer had asked magistrates not to file certain documents with the court until after 1 July, fearing publicity would jeopardise Mediaset's flotation.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Client Services Assistant

£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor