* Rejects 3 bln euro offer from Egypt's Sawiris
* Takes step towards possible copper infrastructure stake sale
* Wants improved bids for Telecom Italia Media (Adds source comments on board meeting)
By Danilo Masoni
MILAN, Dec 6 (Reuters) - Telecom Italia on Thursday rejected a 3 billion euro ($3.9 billion) investment offer from Egyptian tycoon Naguib Sawiris and will take more time to consider the possible sale of a stake in its copper network.
The heavily indebted company said in a statement that its board had decided "not to proceed further" with regards to an expression of interest from Sawiris, who had proposed to invest capital to engineer a strategic turnaround.
After an eight-hour meeting of the group's board, it asked management to further investigate a possible sale of a stake in its copper network to state fund Cassa Depositi e Prestiti (CDP).
The biggest obstacle to an agreement with the CDP appears to be the valuation of the network and the governance of the new company to be set up to manage the infrastructure, people familiar with the situation have said.
The company also said it wanted to continue negotiations with the two bidders for its loss-making television unit Telecom Italia Media to extract a better price.
In its statement, Telecom Italia did not mention any decision about a possible expansion in Brazil, a major source of growth in recent years. The company had looked at a possible purchase of Vivendi's broadband unit GVT.
Sawiris was prepared to pay market prices - or around 0.70 euros per share - as part of a capital increase to help Telecom Italia pay down debt and bid for GVT.
Telecom Italia's top investors value their stakes on their books at 1.50 euros per share after several writedowns.
Shares in Telecom Italia fell 1.74 percent to 0.7065 euros on Thursday before the announcement, underperforming a lower market, giving the company a market capitalisation of about 13.5 billion euros.
The stock has slumped 70 percent since Spanish competitor Telefonica and Italian financial groups Mediobanca , Intesa Sanpaolo and Generali together bought a controlling 22.4 percent stake in Telecom Italia in the spring of 2007.
"WORK IN PROGRESS"
After months of contacts between Telecom Italia and CDP, the board's decision on the fixed-line network, possibly worth up to 15 billion euros, marks the start of formal negotiations for a possible stake sale.
Chairman Franco Bernabe had previously said that a decision on whether to go ahead with a separation of the network into a new company would be taken by year-end.
"The negotiations are serious, let's see where they will lead to. It's work in progress," a source close to the board told Reuters. The source did not want to be named.
The Italian government is keen for Telecom Italia to sell to the CDP a 30 percent stake in the copper network that connects homes and businesses to the phone network and the Internet.
That would raise cash that could be used to invest in a faster fibre broadband much-needed by Italian companies. Europe's fourth-largest economy has long been an Internet laggard, its creaky networks stunting the development of online commerce and banking.
A sale of a stake in the network could also accelerate the group's debt-cutting.
Squeezed between the need to pay dividends to its controlling shareholders and keep a lid on its 29.5 billion euros of debt, Telecom Italia has struggled to invest in its home network or expand in growth markets like Latin America.
French operator Vivendi has put its Brazilian unit GVT up for sale. Telecom Italia, which already owns successful mobile unit TIM Participacoes in Brazil, has not presented an offer as the price tag is too high.
Telecom Italia has made debt-cutting a priority since late 2008, reducing net debt by more than 4 billion euros.
($1 = 0.7700 euros) (Reporting by Danilo Masoni; Editing by Lisa Jucca, Grant McCool and Phil Berlowitz)