UPDATE 2-Italo shareholders forego listing to take up GIP's sweeter bid

* Infrastructure fund ups bid to 1.98 bln euros for all of Italo

* Italo planned to sell up to 40 pct in an IPO this month

* After strong growth in Italy, company eyes expansion in Europe (Adds industry minister and analyst comment, possibility of CEO/chairman remaining for few weeks, PIX, TV links)

MILAN, Feb 7 (Reuters) - The shareholders of Italian railways group Italo have accepted a 1.98 billion euro ($2.4 billion) takeover offer by Global Infrastructure Partners (GIP) and scrapped plans for listing the company on the Milan bourse.

The U.S.-based infrastructure fund raised its offer for all of Italo late on Wednesday from an initial bid of 1.9 billion euros, excluding debt - just days before Europe’s only profitable private high-speed train operator was due to price its initial public offering.

The new offer includes an equity value for Italo of 1.94 billion euros, the promise to pay out 30 million euros in already promised dividends and another 10 million euros to cover for the cost of dropping the planned listing.

Italo, which had planned to offer up to 40 percent of its capital in an initial public offering (IPO) slated for later this month, said in a statement that its shareholders had accepted the new offer.

Under the GIP offer, Italo shareholders can reinvest in the group and buy up to 25 percent of the railway operator.

Italo has enjoyed rapid growth in Italy by offering long-distance rail passengers a wider range of prices, including budget tickets, and reducing costs by selling largely online. It aims to expand further at home by expanding its fleet and opening new routes, including from Milan to Venice.

In future it hopes to export its business model abroad to capitalise on an EU drive to create a single market for the sector from 2020 and being part of GPI, a U.S.-based infrastructure fund managing assets worth around $40 billion, could help.

“Italo has great growth prospects in Italy over the next three years and once that is complete, GIP will want to look abroad where the high-speed market is finally opening up to competition,” said Andrea Giuricin, CEO of TRA Consulting, which focuses on the transport sector.

Accepting the GIP offer gives shareholders the opportunity to cash in on an investment that took a decade to turn a profit.

Based on initial interest from potential investors during IPO pre-marketing, the GIP bid offers upside to the value that would likely have emerged through the share offering, two sources close to the matter said.

But by selling their shares, investors miss out on any potential share price increase and dividend payments Italo - a business with a core profit margin of around 35 percent - might have offered in the future.

Italo’s founders, including former Ferrari boss Luca Cordero di Montezemolo, invested a combined 1 billion euros in the start-up in 2006, seeking to challenge Italy’s state-owned Ferrovie dello Stato on high-speed routes across the country.

Arriving just weeks before Italy’s general election on March 4, the takeover bid removes any uncertainty Italo might have faced had it pursued its listing plans.

Montezemolo, who also serves as chairman, and Chief Executive Flavio Cattaneo, both Italo shareholders, have yet to say whether they plan to keep their posts under the new owner.

One source close to the matter said the two managers would remain in their positions for a few months to manage the transition.

The deal shows there is appetite for Italian assets despite looming elections, even though some politicians had hoped for a different ending.

“The listing would have been a great crowning achievement of a success story,” Industry Minister Carlo Calenda said, but added “the private shareholders decided otherwise and had the right to do so”.

GIP was advised in the deal by Italian investment bank Mediobanca, while Italo was assisted by Rothschild.

($1 = 0.8158 euro)

Additional reporting by Elisa Anzolin in Milan and Gianni Montani in Turin; Editing by G Crosse and Susan Fenton