By Elvira Pollina
MILAN (Reuters) - Mediaset and its second largest investor Vivendi are working on a potential deal to end a long-running legal row and revive the Italian broadcaster's European growth strategy, two sources close to the matter said.
Controlled by the family of former Italian prime minister Silvio Berlusconi, Mediaset had been targeting expansion in Europe to cope with stiffer competition in the industry from streaming services such as Netflix.
But Vivendi's opposition has forced Mediaset to freeze plans to create a Dutch holding company to pursue alliances in Europe.
The two groups have been locked in a fight since 2016 when Vivendi ditched an accord to buy Mediaset's pay-TV unit and built a 29% stake which Mediaset considers hostile.
In a bid to break the stalemate, the heads of the two groups resumed contacts this month.
The two sources said the groups were looking at ways to relaunch Mediaset's pan-European growth strategy, which the Milanese broadcaster considers vital, with Vivendi's backing.
A solution is not yet in sight and the uncertainty created by the pandemic complicates matters, the sources said.
In the meantime, the legal dispute triggered by the collapsed pay-TV deal rumbles on and a closed-door hearing took place in Milan on Tuesday. A ruling is not expected before next year, giving the parties time to seek a compromise.
One of the sources said Mediaset may consider dropping its multi-billion euro damages claims if a solution emerged that fostered the group's development.
Mediaset had planned to fold its domestic and Spanish businesses into the Dutch vehicle, and eventually pursue a closer tie-up with Germany's ProSiebenSat.1, in which Mediaset owns a 24.2% stake.
The prospect of a potential breakthrough lifted Mediaset's stock which was up 3.2% by 1506 GMT against a 0.7% rise in Italy's All-share index.
Mediaset Espana shares were also up 3%, while shares in ProSieben gained as much as 7% on Tuesday after Italian daily Il Messaggero reported that a potential deal may entail Mediaset raising its stake in the German group, which has so far shunned the prospect of closer integration.
Both Mediaset and Vivendi declined to comment.
(Reporting by Elvira Pollina, additional reporting by Alfredo Faieta; Editing by Valentina Za, Keith Weir and David Evans)