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Iliad exploring possible Italy tie-up with TIM

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French group working with advisers, source says

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Top executives held talks with Italian officials

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CVC also studying Vivendi stake in TIM, sources say

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Italian mobile market facing stiff price competition

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TIM to update business strategy next week

(Recasts with source, adds details)

By Elvira Pollina

MILAN, Feb 7 (Reuters) - French telecoms group Iliad is

exploring a possible tie-up of its Italian unit with Telecom

Italia (TIM) and met Italy's economy minister and top

government officials this week to inform them, a source with

knowledge of the matter said.

Italy considers TIM as strategic and any deal involving its

assets needs Rome's backing, as the government has 'golden'

powers to vet any investment handing the buyer a stake above 3%.

Iliad CEO Thomas Reynaud told Giancarlo Giorgetti and other

top officials on Tuesday any deal would not break TIM up and

would safeguard jobs at the former monopoly, the source said.

The Italian Prime Minister's office declined to comment on

Friday while the Treasury was not immediately available. Telecom

Italia declined to comment.

Italian state lender CDP is TIM's second-largest investor

behind France's Vivendi, which is considering options

for a stake worth some 1 billion euros at current prices.

Private equity firm CVC is interested in buying Vivendi's

stake in TIM, sources have previously told Reuters.

Last year, TIM completed a landmark deal to sell its

fixed-line asset network to a consortium led by U.S. fund KKR

. It is due to update its business strategy next week.

M&A PUSH

Founded by French billionaire Xavier Niel, Iliad launched

low-cost mobile services in Italy in 2018, intensifying already

fierce price competition in its mobile market.

Iliad, which now serves more than 11 million customers in

Italy, has repeatedly called for consolidation to reduce the

number of network operators in the country from four to three.

It attempted to buy Vodafone's ( VOD ) Italian subsidiary last year

and had already considered a combination with TIM.

Italian newspaper La Stampa reported on Friday that Iliad

had given a mandate to Boston Consulting Group (BCG) to study a

possible deal, while Corriere della Sera said Iliad, assisted by

Lazard ( LAZ ), had talks with Italian economy ministry officials.

Iliad is also working with Mediobanca, the source told

Reuters.

BCG declined to comment on the report. Lazard ( LAZ ) and Mediobanca

were not immediately available to comment.

TIM's Milan-listed shares rose by nearly 3% to a one-year

high, against a slightly negative blue chip index.