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By Valentina Za and Leila Abboud
MILAN, Oct 6 (Reuters) - French media group Vivendi confirmed on Tuesday that it has raised its stake in Telecom Italia to 19.9 percent, in a move that tightens its grip on the Italian phone company at a time of industry consolidation.
The stake building brings Vivendi's overall investment in Italy's former monopoly to more than 3 billion euros ($3.4 bln) and cements its role as the biggest shareholder in the indebted company, which is seen as a potential takeover target.
Vivendi said the move confirmed its intention to develop its activities in southern Europe, in a statement analysts said could be a prelude to a deal involving Spain's Telefonica .
Vivendi, led by key shareholder and Chairman Vincent Bollore, has a 1 percent stake in Telefonica, which until earlier this year was the main investor in Telecom Italia.
Under Bollore, a 63-year old Breton billionaire, Vivendi is now focused on developing its remaining businesses -- Universal Music Group and French pay TV operator Canal Plus- and wants to turn itself into a media powerhouse to compete with Sky PLC and head off challenges from Internet-based players like Netflix.
Vivendi's investment in Telecom Italia is opportunistic and a financial bet, people close to the situation said.
Bollore aims to eventually steer the Italian group's strategy, particularly on the future of its Brazilian mobile operator TIM Brasil, which could be a predator or prey in long-mooted consolidation there.
Four sources familiar with the matter told Reuters last week that Vivendi had taken steps to boost its Telecom Italia holding to around 19 percent, with one source saying France's Orange and Deutsche Telekom could be interested in a tie-up with Telecom Italia.
Vivendi's stake previously stood at 15.5 percent.
Vivendi's stake-building comes a year after the media group finished selling off all three of its main telecoms interests - French mobile network operator SFR, Maroc Telecom and Brazil's GVT.
However, brokerage Liberum said in a note it expected Vivendi to increase its stake in Telefonica with the aim of exerting "major influence over the pipes which direct content rather than to own content providers in those countries (Spain and Italy)."
At the same time, Telecom Italia presents strong potential for restructuring or the sale of assets such as TIM Brasil, analysts said. The group has seen revenues decline steadily amid tough competition in its mature home market and is now grappling with a recession and currency devaluation in Brazil.
"Vivendi's long-term goal could be building a media-telecoms group. Telecom Italia is key in this context. The stake-building in Telecom Italia in particular could be a prelude to a rapprochement with Telefonica," Natixis said in a note.
Vivendi received an 8.2 percent stake in Telecom Italia in June from Telefonica as part-payment for selling its Brazilian broadband telecoms group GVT to Telefonica Brasil.
The French company then began buying additional shares.
As part of the latest stake-building, Vivendi purchased shares between Sept. 4 and Oct. 2 for 738 million euros, the Italian group said. The shares were bought on and off the market at prices of between 1.036 euros and 1.135 euros each.
By 1043 GMT shares in Telecom Italia were up 0.2 percent at 1.073 euros each, valuing Vivendi's stake at around 2.9 billion euros. The French group had earlier said it spent 3.05 billion euros or around 1.14 euros per ordinary share for its overall stake in Telecom Italia. ($1 = 0.8935 euros) (additional reporting by Alexandre Boksenbaum-Granier in Paris; Editing by Silvia Aloisi and Susan Fenton)