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Telecom Italia chief and investors hold last-ditch talks-sources

By Danilo Masoni and Stefano Rebaudo

MILAN (Reuters) - Telecom Italia (MIL:TIT) Chairman Franco Bernabe and core shareholders were holding emergency talks on Thursday, sources with knowledge of the situation said, in a last-ditch attempt to bridge differences on how to relaunch the debt-laden telecoms group.

Bernabe, at the helm of Telecom Italia since 2008, wants investors to commit to an investment plan costing between 3 billion euros ($4 billion) and 5 billion, designed to reverse years of lacklustre growth and fend off a credit rating downgrade, the sources said.

But key shareholders do not want to pour any more money into their loss-making investment, with some exploring the option of selling their shares to fellow investor Telefonica (MCE:TEF) ahead of a October 3 board meeting, the sources said.

"Bernabe will present his options to the shareholders at this informal meeting because he knows he cannot meet the board on October 3 with a list of proposals which are not backed by the investors. That would leave him in a very difficult situation," one of the sources told Reuters.

Telecom Italia has made no comment on the talks, which were happening at the company's offices in Milan.

Spanish newspaper El Economista reported Bernabe could quit if a capital-raising plan needed to fund investment is not approved. But core investors appear to prefer disposals, sources told Reuters.

Some shareholders have privately expressed disappointment over Telecom Italia's strategic plans as it grapples with recession at home and slowing growth in Brazil.

"The shareholders are against a new capital hike, they want Bernabe to present a new business plan which guarantees the viability of the company. If Bernabe needs money, he has to divest," the source familiar with the situation said.

Telecom Italia's main source of growth is its Brazilian mobile arm Tim Participacoes (SAO:TIMP3), which has a stock market value of some $11 billion and which Bernabe would only sell for a large premium.


Telecom Italia has struggled to grow because of its 29 billion euro debts and falling margins. It needs to find other sources of financing after directors rejected two attempts by Bernabe to bring in new investors.

Any decision on strategy is complicated by the fact core shareholders, bound together in a holding company called Telco that owns 22.4 percent of the company, have to say by September 28 if they want to exit their pact early and ditch their stakes.

Otherwise the pact runs to 2015.

Telco's largest investor Telefonica has offered 800 million euros to buy some shares from Italian partners Generali (MIL:G), Mediobanca (MIL:MB) and Intesa Sanpaolo (MIL:ISP). But the offer was rejected, according to daily Il Sole 24 Ore.

A cash call could open the door to a new investor.

Telecom Italia and Telefonica declined to comment. Generali and Mediobanca had no immediate comment.

Analysts see AT&T (NYS:T), Egyptian tycoon Naguib Sawiris and cash-rich Vodafone (LSE:VOD) as possible predators in a shake up of the sector expected to be triggered by Vodafone's $130 billion exit from its U.S. wireless investment.

But the board of Telecom Italia has rejected a 3 billion euro cash injection offer from Sawiris and a merger proposal from Hong-Kong-based Hutchison Whampoa <0013.HK> over the last 12 months.

Intesa Chairman Gian Maria Gros-Pietro said on Thursday only that the bank was open to any solution that would benefit Telecom Italia, its investors and creditors.

In August Telecom Italia warned its 2013 profit would fall faster than expected, prompting rating agencies to threaten a downgrade to "junk" status.

Telco investors took control of Telecom Italia in 2007, before the global financial crisis, paying shares 2.8 euros each. The stock is now worth 0.59 euros. ($1 = 0.7492 euros)

(Additional reporting by Paola Arosio in Milan, with Robert Hetz and Clare Kane in Madrid; Writing by Lisa Jucca; Editing by David Holmes)