(Recasts with Reuters sourcing, adds mandates, details on possible tie-up with Mediaset Premium)
By Pamela Barbaglia and Sophie Sassard
LONDON, Aug 7 (Reuters) - Telecom Italia is in talks with Vivendi to acquire the French media group's Brazilian broadband unit, and trump a recent bid from Spanish rival Telefonica, sources familiar with the situation said.
The plan, which could be finalised over the next three weeks, envisages a counter-bid by Telecom Italia for the Brazilian unit, GVT, followed by an equity swap that would allow Vivendi to acquire a stake in Italy's biggest phone operator, said the sources.
Telecom Italia's executives are working on the transaction with Citigroup, Mediobanca and Banco Bradesco , several sources told Reuters.
The news came soon after Telefonica, Telecom Italia's biggest individual shareholder for the past six years, made an unsolicited 6.7 billion euros bid for GVT earlier this week.
Telefonica is working with J.P. Morgan on the deal, the sources said.
The Spanish telco also offered Vivendi the chance to acquire an 8.3 percent stake in Telecom Italia, which owns 67 percent of Brazil's second-largest mobile firm, TIM Participacoes .
Telecom Italia aims to at least match the value of the Telefonica bid for GVT with cash and shares, most likely in Telecom Italia but possibly in TIM Participacoes, one of the banking sources said.
Vivendi's pay-TV arm, Canal Plus, is also in talks, for the purchase of a majority stake in Italian rival Mediaset Premium, a subsidiary of Mediaset, some of the sources said. The business could ultimately be folded into Telecom Italia as telecom and media services converge, the sources said, despite Telefonica's agreeing last month to buy 11 percent of Mediaset Premium for 100 million euros.
Deutsche Bank is advising Vivendi on Mediaset Premium, while Barclays is working with rival Qatari-owned bidder Al Jazeera, one of the sources said.
"The ultimate game is the merger between Mediaset and Telecom Italia," said one source, who added that while such a deal has long been talked about it can now be achieved with Vivendi's impetus.
A deal with Vivendi would allow Telecom Italia to break free from Telefonica and strengthen its position in Latin America. Telecom Italia had approached Vivendi for a possible purchase of GVT in the past but walked away because of valuation issues, a source with direct knowledge of the situation said.
Vivendi's chairman, Vincent Bollore, is already one of Italy's most influential foreign investors thanks to a 9 percent stake in Mediobanca, Italy's best-known investment bank.
Mediobanca, which the sources said was advising Telecom Italia on the prospective tie-up, was also until recently one of Telecom Italia's core shareholders.
Earlier on Thursday, a Bloomberg report said that Telecom Italia was pursuing an alliance with Vivendi that could see the French group take a "significant" stake in it in exchange for GVT. Telecom Italia could also offer cash or raise shares to fund the deal, it said.
The Italian company had said on Wednesday it was considering all options in Brazil.
Several people familiar with the situation said on Thursday that talks had taken place between Telecom Italia's chief executive, Marco Patuano, and Bollore before Telefonica made its bid for GVT.
Officials at Telecom Italia, Vivendi, Mediaset and the different banks all declined to comment.
Telecom Italia's stock closed up 1 percent at 0.812 euro on Thursday, having traded as low as 0.798 euro before the Bloomberg report. Vivendi's shares initially rose on the report before falling back to close down 0.9 percent at 19.285 euros, while Telefonica closed down 1.4 percent at 11.63 euros. (1 US dollar = 0.7489 euros) (1 US dollar = 2.2878 Brazilian reals) (Reporting By Francesco Canepa and Lionel Laurent in London, Maya Nikolaeva in Paris and Paola Arosio in Milan; Editing by Greg Mahlich and Leslie Adler)