Fondiaria-Unipol merger within sight

MILAN (Reuters) - Fondiaria (FOSA.MI) and Unipol (UNPI.MI) said their twin 1.1 billion euro ($1.3 billion) capital increases were poised to start July 16, bringing them closer to creating Italy's second-largest insurance group.

Fondiaria said on Thursday the terms of the capital increase were unchanged from those already approved, adding the capital hike was conditional on finalizing the underwriting consortium by Friday morning.

Unipol, which said it had called a board meeting on Thursday to approve definitive conditions, agreed in January to come to the rescue of Fondiaria in a deal that envisages a four-way merger and three capital increases.

The merger is vital for loss-making Fondiaria to avoid being placed under court-appointed administration, which would have weakened Italy's financial system at a time when a credit crunch and a recession has already hobbled business activity.

The collapse of Fondiaria would have placed creditor Mediobanca (MDBI.MI) at risk of a large loan writedown, and could have sucked UniCredit (CRDI.MI), a Fondiaria shareholder with exposure to the insurer's parent, into the morass.

A series of judicial and regulatory obstacles, as well as bitter disputes with Fondiaria's main owners, the Ligresti family, have muddied waters and tested Unipol's patience.

Fondiaria was weakened by years of mismanagement by the Ligresti family combined with bond writedowns in the wake of the financial crisis.

A judicial probe for alleged fraud and market manipulation centered around Salvatore Ligresti, owner of Fondiaria through listed holding Premafin (PRAI.MI), which has been another headache.

While the Ligresti family exits the stage in disgrace, other players in the saga have come under fire as well.

Mediobanca came under fire for its double role as deal-maker and creditor.

Italy's insurance regulator Isvap was criticized last month by a government source for having managed the crisis "late and poorly."

Meanwhile, a rival bid from private equity funds Sator and Palladio lacked an industrial partner, and never gained traction.

($1 = 0.8164 euro)

(Reporting by Jennifer Clark; Editing by Dan Lalor)