In your one remaining trial, you are accused of bribing judges. One of your co-defendants is Cesare Previti, a close friend, a senator for your Forza Italia party, and defence minister in your first government in 1994. The judges who allegedly took bribes are Filippo Verde and Renato Squillante, both of whom formerly worked in the courts in Rome.

While investigating the aborted 1985 sale of SME, a state-owned food conglomerate, to Carlo De Benedetti, a wealthy Italian businessman, magistrates came across a payment made by All Iberian, a secret offshore part of Fininvest, the company at the apex of your corporate hierarchy.

In March 1991, All Iberian had paid $434,404 into Mr Previti’s Mercier bank account at Darier Henscht & Cie in Geneva, through two transit bank accounts called Polifemo and Ferrido. On the next day, the same amount was transferred from Mr Previti's account to an account held in the name of Rowena Finance, a Panamanian company, with bank accounts in Switzerland. The beneficial owner of Rowena Finance was Mr Squillante.

In late 1999, you and Mr Previti were charged with bribing Mr Squillante, and Mr Verde who, with two fellow judges in Rome’s court of first instance, gave a controversial ruling which stopped Mr De Benedetti buying SME.

On May 30th 2003, prosecutors requested 11 years in jail for each of Mr Previti and Attilio Pacifico, 11 years and four months for Mr Squillante, and four years and eight months for Mr Verde. No request was made for your sentencing, because on May 16th the court had ruled that your trial should continue separately, due to your heavy commitments as prime minister and prospective president of the European Union.

You are in a unique position in this trial. As prime minister, you are a civil co-plaintiff; as Silvio Berlusconi, you are a defendant. On June 6th the state’s advocate, Domenico Salvemini, representing you as prime minister, told the judges that €1m ($1.17m) of damages should be awarded against you (as Silvio Berlusconi) and other defendants. At the close of his speech, Mr Salvemini said that the SME affair had done huge damage to the credibility of justice. “Even so,” he added, “my requests, such as they are, are not enormous because they result from agreements and contact I have had with…the prime minister’s office.”

On June 18th, the Italian parliament approved a bill to grant immunity from criminal trials to the prime minister. As a result, the SME trial has been suspended until you are no longer prime minister. But the immunity law is being challenged in the constitutional court.

By 1985, when the SME sale to Mr De Benedetti was stopped, your main business was commercial television, in which you had secured a near monopoly.

Until the 1970s, only RAI, Italy’s state broadcaster, was permitted by law to transmit nationally; indeed it was the only national broadcaster. During the 1970s private TV channels sprang up. The constitutional court clarified the position in 1980 when it ruled that private television stations were allowed to broadcast, but only on a local basis.

You found a way round this ruling. You bought programmes, especially American films and soaps, and offered them at attractive prices to small, regional television stations. You collected the revenue from pre-recorded advertising slots that you inserted. Each station in the embryonic network agreed to broadcast the same programmes at the same time. In this way, you secured, in effect, a national audience.

To skirt round the law and broadcast nationwide, you needed help from Bettino Craxi, who became leader of the Socialist Party in 1976 and prime minister in 1983. On October 16th 1984, magistrates in three Italian cities shut down your television stations (and others) for allegedly broadcasting illegally.

Within four days, Mr Craxi signed a decree that allowed your stations (and others) to stay on air. After parliamentary tussles, this decree became law in early 1985.

In 1994 Mr Craxi fled to Tunisia and died there in 2000 as a disgraced fugitive from Italian justice. He had been sentenced in absentia to prison for corruption.

Until the mid-1980s, the state controlled much of the Italian economy through three holding companies, the largest of which was Istituto per la Ricostruzione Industriale (IRI). IRI’s sales were massive, but it made losses and was deep in debt.

Romano Prodi, at the time an ebullient and respected industrial economist from Bologna, became its chairman in November 1982. A lapsed Christian Democrat, he was ahead of his time: he believed in market forces and had a penchant for pragmatic privatisation. Politicians had run IRI to buy votes; Mr Prodi’s aim was to sell those parts of IRI that the private sector could operate better.

A prime candidate was a business that had become a national joke. This was Societa Meridionale di Elettricita (SME), in which IRI had a 64.4% stake. Originally a quoted utility, its assets were taken over directly by the state in 1962. SME used the proceeds to create a new core business: a food empire. Over the next 20 years, SME became a dustbin for companies that should have gone bust, a conglomerate without strategic rationale. It was involved in food production (tomatoes through Cirio, edible oils through Bertolli and milk through De Rica), food distribution (GS Supermarkets and motorway catering through Autogrill), and ice cream and frozen foods (through Italgel).

SME also had a management contract to run a sister group called Sidalm, which owned companies making biscuits, crackers and cakes. Sidalm was virtually a basket-case—it lost 47 billion lire (then around $27m) in 1984 and needed a capital injection of 30 billion lire to stop it going bust.

SME had capable managers, such as Giuseppe Rasero, recruited from Unilever, an Anglo-Dutch food giant, in the 1970s as chief executive of SME’s food-distribution business. He was appointed chief executive of SME itself in 1982. However, a combination of politicians, bureaucrats and joint ventures prevented the real streamlining that the conglomerate needed.

Even so, these managers made some impact on the group. SME reported attributable post-tax profits of 65 billion lire on sales of 2.5 trillion lire in 1984—its first such profit in years. Its audited consolidated accounts for 1984 showed net debts of 247 billion lire and net assets of 432 billion lire. The group had about 15,000 employees.

The Italian food industry was highly fragmented and sold mainly in its domestic market. Elsewhere in Europe, the industry was consolidating aggressively; pan-European groups were emerging, such as BSN Gervais-Danone (now Danone), a French group. Danone was nowhere near as big as Unilever but was far bigger and stronger than SME.

From Mr Prodi’s perspective, greater involvement of the private sector was essential, perhaps through a partner. Terms could not be agreed with the most obvious candidate—the Fossati family, the joint-venture partner in three of SME’s businesses (including Alivar, a quoted company, which owned 60% of Autogrill). Through an asset swap with the Fossati family in early 1985, SME eliminated one of the obstacles to rationalising the group and increased its shareholding in Alivar from 50% to 92%.

After this, SME proposed to merge Alivar, 8% of which was still listed, into itself. SME therefore had to be valued. In early 1985, a leading valuation expert, Professor Roberto Poli, valued IRI’s 64.4% stake at 497 billion lire, and therefore the whole of SME at 772 billion lire (then $389m).

Mr Prodi’s preferred solution was a complete sale of SME, together with its near-bankrupt sister group, Sidalm. But there were three problems. First, for political reasons, the buyer would have to be Italian. Second, potential buyers would want only to cherrypick the good parts of the business, such as Italgel. Third, as of January 1985, no Italian food group was in a position to buy the conglomerate. Buitoni, a pasta and confectionery group, was almost bust; Barilla, a pasta and biscuit maker, was controlled by a Swiss family that owned an arms manufacturer; and Ferrero, a confectionery group then based in Belgium, had never made an acquisition in its near 40-year existence. Sounded out, none of these was interested in the challenge of the whole SME group.

You made known your interest in food companies as early as February 1985. On April 3rd 1985 you met Mr Rasero, who told you that IRI was only prepared to sell the whole of its stake in SME, and that the stake was worth about 500 billion lire. According to Mr Rasero, you replied that the price was beyond your companies.

Meanwhile, Mr De Benedetti, known as a maverick businessman, was looking to diversify. His group, Compagnie Industriali Riunite (CIR), controlled Olivetti, a computer business that CIR had gained control of in the late 1970s when it was in deep financial trouble. CIR had turned round Olivetti by ruthless cost-cutting and by spotting that the future of computing was in PCs not mainframes. Mr De Benedetti had also brought in AT&T, a huge American phone company, as a significant shareholder in Olivetti in 1983, to the chagrin of Mr Craxi’s Socialist Party.

You already had a large stake in il Giornale, a daily paper, and like you, Mr De Benedetti wanted a newspaper. In October 1984 he failed to win control of Corriere della Sera, one of two national newspapers, control of which went instead to the late Gianni Agnelli, with the support of Mr Craxi, by then prime minister. Not to be deterred, Mr De Benedetti soon had a small shareholding in Mondadori, the joint owner of La Repubblica, the other national newspaper, with L’Espresso, the publisher of a news magazine of that name.

As CIR was dependent on Olivetti, it needed a business that would counter-balance the risk of an increasingly competitive PC market. Such a business needed compensating characteristics: low risk, mature markets and strong cashflow. The food industry fitted the bill.

In a typically opportunistic move, Mr De Benedetti snatched Buitoni from under the nose of Danone. In February 1985, he offered the Buitoni family 10% more than the French group for its controlling stake, and clinched the deal in one evening. One thing soon became clear to CIR: Buitoni and SME would be good fits. SME sold mainly to the domestic market; Buitoni more internationally.

Mr De Benedetti seized the moment. In mid-April he contacted Mr Prodi to ask if CIR (through Buitoni) could buy SME. He was initially rebuffed, but eventually hammered out a deal with Mr Prodi (and both sides’ professional advisers) during two marathon meetings.

Mr Prodi for IRI and Mr De Benedetti for Buitoni signed an agreement on April 29th 1985. Buitoni agreed to pay 497 billion lire for IRI’s 64.4% stake in SME. This represented 1,107 lire per SME share, compared with the market price of 1,275 lire on April 30th. The market price was extremely frothy—it had risen by nearly 70% since January 1st. But Buitoni’s offer represented a 38% premium to the average price over the preceding 12 months.

In return for concessions made by Mr De Benedetti during negotiations, the price was payable by instalments. Buitoni also agreed to buy, for one lira, the deeply troubled Sidalm, into which it would inject 30 billion lire. The only undertaking given by Buitoni was to keep SME’s head office in Naples. (On May 26th 1985, Buitoni also promised to retain SME for 15 years.)

The agreement stipulated that the sale was subject to approval by IRI’s board—the details of the negotiations had hitherto been kept to a closed circle in an attempt to stop insider trading. (IRI’s board approved the deal unanimously on May 7th 1985.)

Mr Prodi and Mr De Benedetti announced the agreement in a blaze of publicity at a joint press conference on April 30th 1985. The next day, Il Sole-24 Ore, Italy’s financial paper of record, splashed the story on its front page and ran several stories inside. “20 hours round a table, then an agreement was concluded,” said one headline.

Clelio Darida, minister for state holdings, whom Mr Prodi had kept fully informed of IRI’s talks with Buitoni, told Il Sole-24 Ore that he was in favour of the deal. Renato Altissimo, minister for industry, stated that “the birth of the large Italian food group” gave him great satisfaction.

Mr Prodi soon submitted the agreement to Mr Darida. IRI appointed Professor Luigi Guatri, another eminent valuation expert, to value its stake in SME. When he reported on May 4th, he concurred with Mr Poli’s valuation. There was no such thing as a precise value, his report said, but the price of 497 billion lire offered by Mr De Benedetti was towards the upper end of the range.

At a cabinet meeting on May 2nd, Mr Craxi asked Mr Darida to check that the price was fair and report on the sale. On May 9th, he wrote to Mr Darida claiming that IRI had acted in a “unilateral and prejudicial way” by not seeking government approval before April 29th. Mr Craxi wanted to know if all possible offers had been looked at. On the same day, Mr Prodi asked Mr De Benedetti to put the conclusion of the deal back to May 28th from its original deadline of May 10th.

On May 23rd La Stampa, a daily, published an interview with you about SME. You were quoted as saying: “Now people are trying to promote the image of SME as a golden group that Mr De Benedetti would buy at an advantageous price. In reality, the turnaround of SME has scarcely started, and [Mr De Benedetti] will have to free [the group] from the weight of so many years of political management…”

The same day, out of the blue, a little-known lawyer in Rome, Italo Scalera—an old schoolfriend of Mr Previti—made IRI an offer of 550 billion lire for SME and Sidalm. It was on behalf of unnamed clients, whose identities, said Mr Scalera, would be revealed at the conclusion of the deal. Mr Darida asked Mr Prodi to look into the offer.

On May 28th yet another offer was received. This time it was from Industrie Alimentari Riunite (IAR), a consortium between your Fininvest, Barilla, run by Pietro Barilla, and the Ferrero group, run by Michele Ferrero. IAR offered 600 billion lire (with some payment by instalments) for IRI’s stake in SME and Sidalm. As you and the other two men had previously expressed no interest in the whole of SME, the bid was clearly a tactic to stymie Buitoni’s purchase of SME. A higher offer was also received from a company called Compagnia Finanziaria Mercato Alimentari (Co.Fi.Ma), run by Giovanni Fimiani, a businessman.

The privatisation of SME soon became a farce. On June 4th, a senior banker at Swiss Bank Corporation in London, where there were many SME shareholders, fired off an angry telex to the chairman of Consob, Italy’s stock exchange regulator. “It seems strange”, she wrote, “ …that a deal agreed, and signed, between those parties involved should subsequently be called into question in such a public fashion. The apparent chaos…is doing…immeasurable damage to the reputation of Italian financial markets…”

On June 9th, L’Espresso published an interview with you. You said that you had not phoned Mr Craxi to ask him to intervene: “On the contrary, the fact of being a friend of prime minister Craxi constituted an obstacle.”

The government said that all offers for SME should be considered, and, on June 15th 1985, Mr Darida issued a decree to stop the sale.

In all this manoeuvring, one small, but highly significant, detail had been overlooked. For years, IRI, as requested in ministerial circulars, had been seeking government approval to sell companies. This was not necessary, however, under the law. “Ministerial circulars which give authorisation—accepted in the past, out of weakness and a desire for a quiet life, or ignorance on the part of IRI itself―are illegitimate because they assume a power without legislative underpinning,” wrote Sabino Cassese, one of Italy’s leading experts on administrative law, in a newspaper article on May 22nd 1985.

Nonetheless Mr Prodi submitted the deal to the government, perhaps for one of the reasons suggested by Mr Cassese. Mr De Benedetti believes that Mr Prodi knew in April 1985 that he did not need government approval. Buitoni duly sued IRI for fulfilment of the agreement signed on April 29th 1985.

In a case brought by Mr Fimiani’s Co.Fi.Ma, the highest level of the final appeals court, in March 1986, confirmed Mr Cassese’s view of the law. No government approval was necessary for IRI to sell SME, said the final appeals court, as IRI was subject to ordinary company law.

This was three months before Buitoni lost its case at the court of first instance in June 1986. In this court, three judges, presided over by Mr Verde, now one of the defendants in the SME case, ruled that Buitoni’s agreement with IRI was not enforceable because it was subject to government approval, and that had not been given.

Buitoni also lost at the appeals court in February 1987. This court criticised Mr Verde and his two fellow judges for their interpretation of the law. However, in a convoluted judgment, it ruled that even though the law did not provide for government approval, both Buitoni and IRI had expressed a wish to secure government sanction for the deal. They had done this, said the appeals court, through a two-line clause in the agreement of April 29th 1985, which was therefore not binding. In July 1988, in an even more convoluted judgment, the final appeals court also ruled that the agreement was not enforceable.

In its pleadings from December 1987, in a case started by IAR, IRI itself had declared that “it was completely free…to decide if, how, when, with whom and under what conditions to execute a contract.”

Given that no government approval was needed, it is not irrelevant to speculate about how a person who had been instructed to block the sale of SME would have achieved his objective. From the perspective of someone who was familiar with the final-appeals-court ruling in March 1986 (ie, that IRI was subject to ordinary company law), Buitoni and IRI had reached a valid agreement on April 29th 1985 that was not subject to government approval.

From this person’s perspective, the agreement between IRI and Buitoni was therefore binding. So the only blocking tactic that such a person could have deployed successfully would have been interference in the course of justice when Buitoni first tried to enforce the agreement.

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