Deal on Telecom Italia future still elusive after surprise talks

* Share sale or disposal of Brazil unit seen as main options

* Bernabe wants to pursue investment plan

* Some core investors looking to sell to Telefonica

* Decision expected by Oct (KOSDAQ: 039200.KQ - news) . 3 board meeting

By Danilo Masoni and Stefano Rebaudo

MILAN, Sept 19 (Reuters) - Telecom Italia Chairman Franco Bernabe and core shareholders failed in hastily-convened talks on Thursday to bridge differences on how to relaunch the debt-laden group ahead of a board meeting early next month.

Bernabe wants investors to commit to an investment plan that could be worth around 3 billion euros ($4 billion), designed to reverse years of lacklustre growth and fend off a credit rating downgrade, sources with knowledge of the situation said.

But influential shareholders do not want to pour more money into the loss-making investment, with some exploring the option of selling their shares to fellow investor Telefonica ahead of the Oct. 3 board meeting, the sources said.

"The situation is still in flux and no decision has yet been taken on the shareholder structure," one of the sources said. "The meeting on Oct. 3 will be decisive."

Telecom Italia (Milan: TIT.MI - news) has made no comment on the talks, which were called unexpectedly at the company's offices in Milan after a planned board meeting had earlier been cancelled.

Directors were also tight-lipped on the meeting, which was attended among others by board member and Telefonica CEO Cesar Alierta.

Tarak Ben Ammar, another director, tried to defuse tension by saying the crisis meeting had been "a lunch among friends."

While Bernabe, who has been at the helm of Telecom Italia since 2008, backs a capital increase to fund investment, core investors appear to prefer disposals, the sources told Reuters.

Some shareholders have privately expressed disappointment over Telecom Italia's strategic plans as it grapples with recession at home and slowing growth in Brazil.

"The shareholders are against a new capital hike, they want Bernabe to present a new business plan which guarantees the viability of the company. If Bernabe needs money, he has to divest," the source familiar with the situation said.

Telecom Italia's main source of growth is its Brazilian mobile arm Tim Participacoes, which has a stock market value of some $11 billion.

SOURCES OF FINANCE

Telecom Italia has struggled to grow because of its 29 billion euro debts and falling margins. It needs to find other sources of financing after directors rejected two attempts by Bernabe to bring in new investors.

Any decision on strategy is complicated because core shareholders, bound together in a holding company called Telco that owns 22.4 percent, have to say by Sept. 28 if they want to exit their pact early and ditch their stakes.

Otherwise the pact runs to 2015.

Telco's largest investor Telefonica has offered 800 million euros to buy some shares from Italian partners Generali , Mediobanca (Milan: MB.MI - news) and Intesa Sanpaolo (Milan: ISP.MI - news) . But the offer was rejected, according to daily Il Sole (Milan: S24.MI - news) 24 Ore.

A cash call could open the door to a new investor.

Telecom Italia and Telefonica declined to comment. Generali and Mediobanca had no immediate comment.

Analysts see AT&T (NYSE: T - news) , Egyptian tycoon Naguib Sawiris and cash-rich Vodafone (LSE: VOD.L - news) as possible predators in a shake up of the sector expected to be triggered by Vodafone's $130 billion exit from its U.S. wireless investment.

But the board of Telecom Italia has already rejected a 3 billion euro cash injection offer from Sawiris and a merger proposal from Hong-Kong-based Hutchison Whampoa (HKSE: 0013.HK - news) .

Intesa Chairman Gian Maria Gros-Pietro said on Thursday only that the bank was open to any solution that would benefit Telecom Italia, its investors and creditors.

In August Telecom Italia warned its 2013 profit would fall faster than expected, prompting rating agencies to threaten a downgrade to "junk" status.

Telco investors took control of Telecom Italia in 2007, before the global financial crisis, paying shares 2.8 euros each. The stock is now worth 0.59 euros.