MILAN/ROME (Reuters) – Italy’s state lender is seeking to broker a truce between Telecom Italia’s (TIM) two warring investors, France’s Vivendi and U.S. activist group Elliott, to end a boardroom battle that has paralyzed the group, sources said.

Cassa Depositi e Prestiti (CDP), controlled by the treasury and now TIM’s second biggest investor behind Vivendi, is in talks with the French group to iron out an agreement, two sources familiar with the discussions said.

Vivendi and Elliott have been trading blows for more than a year over how to revive Telecom Italia (TIM), the slumbering telecoms heavyweight saddled with more than 25 billion euros ($28.12 billion) of debt.

The next showdown will take place at a shareholder meeting on Friday, where Vivendi’s proposal for a board reshuffle to reduce Elliott’s influence is expected to be rejected.

CDP, which began investing in TIM last year to safeguard Rome’s interest in a company it sees as strategic, has recently almost doubled its stake to just under 10 percent.

“There are contacts between Vivendi and CDP and there are signs of wanting to find common ground,” one of the sources said, adding details would be discussed after Friday’s AGM.

In an emailed statement, CDP denied that it was holding talks with Vivendi or other TIM shareholders.

Elliott was not currently involved in the talks, the people added, although a separate source said the U.S. fund might be open to finding some sort of accord after the AGM.

A truce between Vivendi and Elliott could speed up the creation of a single network operator, a project backed by the CDP but which is one of the main bones of contention between Elliott and Vivendi.

Investors say the acrimonious bickering between Vivendi and Elliott, which has cost TIM’s shares a third of their value over the last year, has done little to revive the former monopoly.

They say that the two sides need to bury the hatchet and allow management to push through measures to slash debt, tackle competition and pursue strategic options to boost value.

“This conflict has made it impossible for TIM’s management to implement any kind of strategy, defend its market share or fight growing competition,” said Emanuele Vizzini, general manager at Milan-based investment fund Investitori Sgr. His fund cut most of its TIM stake due to the governance battle.

GRAPHIC: TIM’s share performance since January 2018, click tmsnrt.rs/2CFNRdN

TIM has underperformed bigger peers such as Deutsche Telekom and Orange for years, is facing new rivals in both broadband and mobile, and its Brazilian business is only gradually recovering from economic malaise.

Elliott wrested control of TIM’s board last May after blaming Vivendi for serving its own interests. It advocated for a more radical shake-up of the telecoms group.

The protracted boardroom battle led to the ousting in November of CEO Amos Genish, a Vivendi ally who was replaced by Luigi Gubitosi, who was appointed to the board by Elliott.

On Friday, Vivendi seeks to replace Chairman Fulvio Conti and four other Elliott-backed directors, citing “substantial lack of independence” and accusing them of conspiring to fire Genish.

It will likely lose the vote, with three influential proxy advisers urging shareholders to vote against the proposal.

But with Vivendi owning nearly a quarter of TIM and able to block many extraordinary measures, getting the French to play ball is vital to get things done, sources said.

A possible compromise could include a more balanced board make-up and a new chairman appointed by the CDP, sources said.

Elliott controls two thirds of the 15-strong board.

While the activist fund had been pushing for TIM to spin off its network and merge it with smaller rival Open Fiber, Vivendi has opposed TIM losing control of its biggest asset.

CDP, which co-owns Open Fiber with utility Enel, is keen to ensure that the project to create a single network becomes a reality, also to avoid duplicating investments.

Now that CDP’s clout at TIM is growing, Vivendi can ill afford to have strained relations with the state lender.

“Going against the CDP would mean going against the Italian state … that’s different than just fighting Elliott,” one of the sources said.

($1 = 0.8891 euros)

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