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Prodi's fall clouds Alitalia, boosts Mediaset

MILAN, Jan 25 (Reuters) - Shares in Alitalia hit turbulence on Friday, as the collapse of Italy’s government clouded its possible sale to Air France-KLM, while investors bought up Mediaset, the broadcaster of poll favourite Silvio Berlusconi.

The centre-left government collapsed late on Thursday after Prime Minister Romano Prodi lost a confidence vote in the Senate after just 20 months in office.

Italy could now face elections, or President Giorgio Napolitano might be able to end the political limbo by forging consensus for an interim government.

Prodi's government had been trying to sell the strike-prone Alitalia AZPIa.MI, which loses about 1 million euros ($1.47 million) a day, for over a year and approved sale talks with Air France-KLM AIRF.PA, Europe's biggest airline, just under a month ago.

Shares in Alitalia initially fell over 6 percent in Milan, but by 1336 GMT were up 0.74 percent to 0.67 euros, giving it a market value of about 930 million euros, but underperforming the overall index .MIBTEL, which was up 1.62 percent.

Air France-KLM’s bid values the Italian airline at about 0.35 euros per share but is an all-share offer giving investors a slice of the resulting group. Investors are also hoping it might improve the terms, or that rival Air One, the small domestic airline snubbed by Prodi’s government, might re-enter the race.

Air France-KLM said the working groups were “calmly working on the dossier”, while Alitalia had no immediate comment.

Air France-KLM’s bid is unpopular with politicians in Italy’s north, many of whom support opposition leader Silvio Berlusconi, as it threatens to cut flights at Malpensa airport, which serves the financial capital of Milan.

A group of northern politicians and businessmen were holding talks on Friday over possible alternatives for Malpensa and cautioned against a fast sale.

“On the one hand, the game is opened up again, but there is the danger that decisions could be taken without any political power around,” said Alberto Bombassei, deputy head of business association Confindustria, who attended the meeting.

Even though Prodi’s government had given Alitalia Chairman Maurizio Prato the mandate for sale talks, the state still has the final say, given its 49.9 percent stake in the carrier.

“The shares are feeling the effects of the government’s fall,” said one trader in Milan.

Ministers in Prodi’s government said earlier this week the talks could go ahead, despite the political crisis, but investors are worried that the deal may now fail.

Air France-KLM and Alitalia have a nominal deadline of mid-March for their talks, which officially kicked off on Jan. 15. Alitalia has said it has enough cash to survive alone until about November, if it sells non-strategic assets.

POLL HOPES BOOST MEDIASET

The opposition led by former prime minister Berlusconi, Italy’s richest man, is pressing for elections that opinion polls suggest will return him to power.

Berlusconi also owns Italy's largest private broadcaster, Mediaset MS.MI, and investors bought up the stock in the expectation that plans by Prodi's government to break up its duopoly with state broadcaster Rai would now be shelved.

Mediaset shares were up 3.22 percent at 6.09 euros.

The proposed Gentiloni law, named after Prodi’s telecommunications minister, could have introduced a competitor in free-to-air television for the two dominant players and would have set a threshold of 45 percent on advertising revenues before penalties were introduced.

“Mediaset is reacting to the fall of Prodi, which officially puts an end to the Gentiloni law,” said a London-based analyst who asked not to be named. (additional reporting by Andrea Mandala in Milan and Alberto Sisto in Rome)

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