By Agnieszka Flak and Danilo Masoni
MILAN (Reuters) - A jump in the company's share price should brighten the mood of any chief executive but that is unlikely to have been the effect this week on Marco Patuano, the head of Telecom Italia (MI:TLIT).
After Patuano held a strategy meeting in Paris with executives from his new top shareholder Vivendi (PA:VIV) on Wednesday, market speculation mounted that the French group led by business tycoon Vincent Bollore might force change with or without Patuano. That sent Telecom Italia's shares up by over 6 percent.
Investors bet the evidence of increased pressure from Vivendi could open the way to a radical overhaul of the heavily-indebted group.
"Patuano is a bit of a man of the past and I'm not sure how long he can stay in the saddle, unless he aligns himself with Vivendi," said Tommaso Iaquinta of boutique investment bank Livolsi-Iaquinta & Partners.
Since taking over as CEO in late 2013, Patuano has had to steer a course for one of Italy's most politically sensitive companies which will not upset the sometimes conflicting interests of the state, employees and shareholders.
Patuano, who started his career in Telecom Italia in 1990 straight after university and worked his way up through the ranks to become chief operating officer before taking over as CEO, has stepped up spending on faster fixed and mobile networks as the government seeks to get internet connections across the nation up to speed with the rest of Europe.
He has also struck deals with content providers such as Sky Italia (L:SKYB), Netflix (O:NFLX) and Mediaset (MI:MS) in a search for new sources of income and to better compete with rivals.
Unlike his predecessor Franco Bernabe, who opposed asset sales and pushed for a share issue before quitting in a clash over strategy with core investors, Patuano began to sell non-core assets to continue cutting Telecom Italia's debt of around 27 billion euros (£20.8 billion).
He struck the deal to sell its controlling stake in Telecom Argentina (BA:TEC2), which after much delay a regulatory source said was finally approved on Thursday, and spun off radio masts unit INWIT (MI:INWT).
However, Patuano's relations with Vivendi were tense from the start, a source close to the matter said. The French group took 8 percent of Telecom Italia in June as part payment for selling Brazilian broadband firm GVT to Spain's Telefonica (MC:TEF), which at the time was Telecom Italia's biggest shareholder.
Vivendi has since steadily built up its stake, tightening its grip on the company, and leaving Patuano under pressure to cut costs at home and decide what to do with its Brazilian business, TIM Participacoes (SA:TIMP3), where Patuano was once chief financial officer.
What to do is a bone of contention. "Vivendi wants to sell Brazil, and Patuano does not," the source said.
Patuano has said he sees TIM Participacoes, Brazil's second-biggest mobile network operator behind Telefonica Brasil (SA:VIVT3), as strategic.
And last month Telecom Italia walked away from a proposal to merge TIM with rival Oi (SA:OIBR3) because, according to a source close to the matter, it would not have had control of the combined entity.
Meanwhile the sudden emergence last October of French telecoms tycoon Xavier Niel as potentially Telecom Italia's second-largest shareholder - he has bought options relating to a 15.1 percent stake - is further complicating matters.
Vivendi and Niel have repeatedly said they are not acting in concert, but their exact long-term aims for investing in Telecom Italia remain unclear.
However, Vivendi described Telecom Italia as "a rudderless ship" in December before going on to secure four board seats.
It has since turned up the heat further by raising its stake in the Italian group to 23.8 percent.
However, another source close to the matter said Vivendi might be pushing for change but is not in a position to act alone, given it only has four of 17 board members.
"Telecom Italia is strategic for the whole Italian industry, the financial sector and the political powers. Nothing can happen without the involvement of these big powers," the source said.
Telecom Italia has seen revenues decline steadily amid tough competition in its mature home market, which is just emerging from a protracted recession, and is now grappling with an economic downturn and currency devaluation in Brazil.
Analysts say Vivendi's interest might lead to a tie-up between Telecom Italia and another telecoms or media operator. So far the French group has only said that it wants to use Telecom Italia to develop its existing businesses in southern Europe and boost its content offering.
"Vivendi's investment in Telecom Italia is the launchpad for something bigger to come, like an M&A deal, as the telecoms industry in Europe is expected to consolidate," said Enrico Vaccari, fund manager at Italy's Consultinvest.
(The story was refiled to add a missing word in paragraph 2)