* CEO Marco Patuano submits resignation
* Telecom Italia shares rise 4 pct
* Expectations of Vivendi-led overhaul of group (Adds analysts, sources on talks, details)
By Agnieszka Flak and Pamela Barbaglia
MILAN/LONDON, March 21 (Reuters) - Telecom Italia Chief Executive Marco Patuano officially resigned on Monday, confirming reports at the weekend he was on his way out as top shareholder Vivendi tightens its grip on the Italian phone group.
Telecom Italia's shares rose 4 percent, adding to a 20 percent gain in the last month in a sign investors were betting the management change and increased pressure from the French could lead to a radical overhaul of the heavily-indebted firm.
Vincent Bollore's Vivendi had been pressing for cost cuts at Telecom Italia after building up a 24.9 percent stake in what analysts view as part of a wider plan that could also involve Italia broadcaster Mediaset to rival Sky and Netflix in Europe.
"Vivendi is trying to create a southern European media empire," a telecoms banker said, adding the French group was also in talks with Spain's Telefonica on their media interests.
"Bollore's goal is to put France-Italy-Spain together."
Telecom Italia's board, which includes four Vivendi representatives among its 17 members, may pass Patuano's powers on an interim basis to Chairman Giuseppe Recchi as soon as Tuesday, a source close to the matter said. Sources had told Reuters on Saturday that Patuano, 51, was stepping down, ending weeks of speculation about his future.
Flavio Cattaneo, CEO of Italian railway company NTV and a Telecom Italia board member, is favourite to succeed Patuano, other sources have told Reuters, although "the final decision lies with Bollore", one of them added. Vivendi has been sounding out potential candidates for the past few weeks, sources say.
Cattaneo has many years of experience at state-controlled firms, including as head of Italian state broadcaster RAI and as CEO of gas grid operator Terna.
He is also on the board of insurer Generali, where sources said Bollore, who is a major indirect investor, exerted his influence in a recent management change.
Andrea Devita, an analyst at Banca Akros, said a telecoms expert would be preferable to replace Patuano but added that Cattaneo "has the right political connections and adequate experience in media and infrastructure".
In another sign of Bollore's increasing activism in Italy, sources told Reuters this month Vivendi was in talks to buy the pay-TV unit of Mediaset, owned by former prime minister Silvio Berlusconi.
On Monday, La Repubblica daily said Mediaset and Vivendi had reached an agreement in principle on a deal that would include a share swap. Mediaset and Vivendi declined to comment.
Analysts and bankers say Vivendi, which has a cash pile of 6.4 billion euros, may eventually aim to take control of Mediaset and even merge it with Telecom Italia to create an integrated media and telecoms player.
With Telecom Italia seen as a potential takeover target in a consolidating European industry, some bankers also expect a future deal with France's Orange - whose CEO recently said he would consider a tie-up if Bollore asked him to.
Patuano's relationship with Vivendi, which has spent around 3.5 billion euros to invest in Telecom Italia, had been tense since the French group first took an 8 percent stake in the company last June.
One area of tension is the fate of Telecom Italia's Brazil unit, which Vivendi would like to sell, sources said.
One source said Vivendi was pushing for cost cuts of around 1 billion euros between 2016-18, nearly double the 600 million euros targeted by Patuano in his latest plan.
But analysts wondered how quickly any CEO could achieve those cuts, especially if they involve thousands of politically-sensitive job losses in Italy.
Getting the right price for Telecom Italia's Brazilian business might also prove difficult at a time when Brazil is grappling with an economic downturn and currency devaluation and no obvious bidders have emerged.
"We believe a turnaround of the Italian assets, which is ongoing, will take time in any case and cannot see a fast exit from Brazil on attractive terms," Barclays analyst Mathieu Robilliard said. ($1 = 0.8875 euros) (Additional reporting by Valentina Za, Danilo Masoni, Giancarlo Navach and Stephen Jewkes in Milan and Mathieu Rosemain in Paris; Editing by Silvia Aloisi and Philippa Fletcher)