* Rebel investor wants minorities to have more board seats
* CEO says company needs "more transparent" governance
* Key strategy issue is future of Telecom's unit in Brazil
* Tenure of current board expires in April
By Danilo Masoni
MILAN, Dec 23 Telecom Italia is likely to have to give minority investors more say after narrowly surviving an attempt by rebel shareholders to throw out the board, potentially complicating decisions over its prized Brazilian business.
Investor Marco Fossati, who owns a 5 percent stake, has led a campaign against the growing influence of top shareholder and rival Telefonica, fearing the Spanish group might force a rushed sale of Telecom Italia's TIM Brasil unit to further its own ends in the fast-growing Latin American market.
Telecom Italia is controlled by Telco, an investment vehicle owned by Telefonica and three Italian investors - Generali , Mediobanca and Intesa Sanpaolo. While it owns just 22.4 percent of the phone group, it has managed to appoint nearly all directors in the current board.
Telecom Italia investors on Friday rejected by a thin majority of 50.3 percent Fossati's proposal to oust the board. Though the proposal failed, it represented the first serious threat to Telco's leadership in the Italian group since it took control six years ago.
Shareholders also rejected a plan to replace two board members with candidates put forward by Telco, dealing a blow to the top shareholder and to new CEO Marco Patuano, who was picked to lead Telecom Italia's turnaround drive in October.
"The result is putting fresh pressure on the board and the management of Telecom Italia to take into greater consideration minorities," Banca Akros analyst Andrea de Vita said on Monday.
"Longer term we see governance improving and greater impact of independent directors. Unfortunately, this comes a bit late."
Since Telco took control in 2007, Telecom Italia shares have lost 70 percent, debt has remained high and its domestic business has been hit by a recession and fierce competition.
Telefonica's goal, according to sources familiar with its plans, is to break up TIM Brasil and divide its assets and network among its local business Vivo and the other two mobile operators in Brazil, America Movil and Oi.
The next governance challenge for Telecom Italia is expected to emerge by April, when its board's three-year mandate ends.
Fossati, who is not represented on the current Telecom Italia board, vowed on Friday to continue his fight and announced plans to submit a proposal to change the company's by-laws and give minority investors greater board representation.
U.S money-manager Blackrock could have a pivotal role going forward after emerging this month as Telecom Italia's second-biggest shareholder with a near 10 percent stake.
Telefonica's two representatives on Telecom Italia's board quit on Dec. 13 in a bid to blunt criticism that it had too much influence over Telecom Italia.
In September Telefonica, which owns 66 percent of Telco, agreed to gradually buy out its Italian partners in Telco from 2014, a deal that was followed by the appointment of Patuano.
Patuano, who last month unveiled a 4 billion plan to fix Telecom Italia's balance sheet and fund much-needed investments to reverse years of share underperformance, denied on Friday allegations that Telefonica was governing the board.
After the vote, he said a more transparent company governance was needed and that support given to Fossati could not be ignored.
"Telco will have to present a list of candidates with a marked independent profile to win the approval of third party investors," an analyst at a leading brokerage firm said.
Patuano also ruled out on Friday the possibility of an offer for TIM Brasil before April, calling the unit strategic.
Following the Telco deal in September, Brazilian regulators told Telefonica to either sell its indirect interest in TIM Brasil or seek a new partner for its own local business Vivo.