MILAN (Reuters) ? Shares in Mediaset lost 10 percent on Wednesday after Italian Prime Minister and leading shareholder Silvio Berlusconi pledged to resign, a development seen as negative for the stock.
Adding to the pressure, Mediaset reported on Tuesday a 30 percent drop in nine-month operating profit and warned that a weak economy -- which is already curbing advertising investments -- now also threatened its pay-TV business.
Mediaset said it would target cost cuts from next year to shore up profits.
Berlusconi lost his parliamentary majority on Tuesday and said he would step down after the approval of a new budget law.
The political uncertainty sent Italian government bond yields on Wednesday to levels deemed as unsustainable.
As the country sinks further into the euro zone debt crisis, shares in Mediaset suffered also for specific reasons linked to the political future of its controlling shareholder.
Berlusconi's role as prime minister is generally viewed as positive for his group because of potential influence on media sector policies, including management of key rival, state-broadcaster RAI.
Mediaset vies with RAI and News Corp's Sky Italia for the shrinking pie of Italian advertising investments -- the market fell 4.6 percent in the January-August period.
"Mediaset could be disadvantaged by this event in the future," Nomura analysts said in a note referring to the PM's intention to resign.
"Sky Italia is now a much more potent competitor than it was under the last government. (...) Italy is expected to suffer austerity for years to come, which we believe is bound to take its toll on top-line growth," they added.
Mediaset's Premium pay-TV business had 2.9 million active cards at the end of September, trailing the five million customers announced by Sky Italia last month.
Mediaset warned its pay-TV business would post a bigger-than-expected loss of 50 million euros this year and may not reach breakeven in 2012 if markets did not improve.
"We welcome the update on costs reduction," Mediobanca analysts said in a note, adding however it was unclear how the process would be addressed.
"On the other hand, new financial targets are disappointing (in particular for the pay-TV business) and this could pave the way for a further reduction of 2011 estimates," they added.
Shares in Mediaset lost 10.2 percent by 1109 GMT (6:09 a.m. ET) as Italy's leading stock index was 4 percent lower. The stock has lost nearly 45 percent so far this year.
(Reporting By Valentina Za; Editing by Elaine Hardcastle)
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