*

Expects France to oppose needed job cuts in any tie-up

*

Worldline has 18,000 employees vs Nexi's 10,500

*

Italy would consider option of privatising Nexi with

co-investors

*

EU has seen a Worldline-Nexi tie-up as way to rival giant

US

payments companies like PayPal ( PYPL )

*

Worldline shares slump after lower-than-forecast revenue

(Adds reference to Worldline missing revenue forecast in

paragraph 8; Nexi share price in paragraph 12)

By Giuseppe Fonte, Valentina Za and Elvira Pollina

ROME, Feb 26 (Reuters) - Italy is reluctant to explore a

potential tie-up with Worldline among options it is weighing to

revive the fortunes of payments champion Nexi, three sources

said, as Rome expects France would oppose the job cuts that

would be needed to make a deal work.

Rome, which this month raised its indirect stake in Nexi,

would consider instead taking the company private with some

co-investors to streamline away from market scrutiny a business

that grew rapidly in recent years through merger deals, one of

the sources added.

Nexi and Worldline, which has the French

government as a leading indirect shareholder, are Europe's top

two payments companies. Both groups and Italy's Treasury had no

immediate comment on the sources' remarks.

A tie-up has long been seen as an obvious way for the EU to

build a stronger player to rival U.S. giants such as PayPal ( PYPL )

, MasterCard ( MA ) or Visa. PayPal ( PYPL ) and JPMorgan

Payments said on Tuesday they were teaming up to expand services

for UK and European merchants.

In calling for lower reliance on non-European payments

providers, the European Central Bank has blamed the sector's

fragmentation as a factor hindering investments.

But the three sources familiar with the matter poured cold

water on a potential deal, saying job cuts would more heavily

hit Worldline, whose workforce of 18,000 staff compares with

10,500 at Nexi.

With shares in Nexi and Worldline trading near record lows,

investment bankers have studied a tie-up and pitched it to

shareholders, a person with knowledge of the matter separately

told Reuters.

On Thursday, Worldline shares slumped 16% after it reported

yearly revenues slightly below analyst estimates and said newly

appointed Chief Executive Pierre-Antoine Vacheron would issue a

more detailed outlook later in the year.

The sources said Italy also deemed the regulatory backdrop

as too complex, given the two companies operate in many

countries.

There have been no concrete discussions between Italy and

France, the sources said, neither at a government level nor

between their equity investment arms.

French investment agency Bpifrance has an 8% voting stake in

Worldline, while Italian state lender Cassa Depositi e Prestiti

(CDP) this month raised its Nexi stake to 18.25%.

Nexi trades at roughly half the 9 euros a share at which it

listed in 2019. Its shares lost 1% to 4.66 euros each by 1125

GMT.

While some of Nexi's fund shareholders are widely known to

be considering an exit given the number of years they have been

invested in the firm, the company has also drawn interest from

other private equity firms.

The depressed share price makes it hard for Nexi's fund

shareholders to exit, especially as they have very different

entry levels, sources have previously said.

Worldline's shares have fallen over 90% since mid-2021 when

investor enthusiasm for payments companies peaked, after

recording three profit warnings within a year and parting ways

with long-standing CEO Gilles Grapinet in September.