By Danilo Masoni
MILAN (Reuters) - Thursday's Telecom Italia SpA board meeting could be more momentous than most executive gatherings.
The session is likely to see the departure of 65 year old Executive Chairman Franco Bernabe, a source close to the situation said, the start of a search for his replacement and, by implication, the beginning of a new strategic direction at the group which still carries the bulk of Italian fixed-line phone calls.
Telecom Italia shares have already risen sharply since Friday, when the source said Bernabe was considering resigning at tomorrow's meeting after six years at the helm.
His likely departure was seen as positive by the market because he would take with him an ambitious plan to raise up to 5 billion euros, likely through a share issue, to cut the company's 29 billion euros (24 billion pounds) debts and fund badly needed investments.
Bernabe's resignation would come after core Telecom Italia owners Telefonica, Generali, Mediobanca and Intesa Sanpaolo were said by sources to have vetoed his planned capital increase, effectively undermining his position.
But whoever Bernabe's long-term successor proves to be, the newcomer faces a hard task to revive the company which has struggled to grow because of its debt burden and a deep economic downturn in its home market.
The manager will leave Telecom Italia, one of Italy's largest private-sector employers, in need of a new business plan that can boost its depressed share price and reverse years of sluggish growth.
A source with direct knowledge of the situation said Chief Operating Officer Marco Patuano is likely to take up Bernabe's powers as chief executive, while Poste Italiane head Massimo Sarmi will become chairman.
"Patuano will be the company head," the source told Reuters, adding that a formal decision on the appointments could be taken at a later board meeting in mid-October.
Telecom Italia declined to comment on Wednesday.
During Bernabe's tenure, Telecom Italia's debt was cut by 8 billion euros, but its shares lost almost 30 billion euros in value, or three quarters of the company's stock market worth.
Also, dividend payouts shrank and Bernabe avoided carrying out the tough job cuts that some analysts say are needed to help the company become more profitable.
The company in August warned its profit would fall faster this year than it had previously thought, as a price war for mobile phone services and the deep economic recession in Italy bite. Its first-half revenue fell 2.7 percent and core profit dropped 6.8 percent.
The expected change at the top would come only days after Spain's Telefonica clinched a deal with its partners to gradually take control of Telecom Italia and its lucrative South American business.
The agreement could lead to a strategy rethink, potentially paving the way for the sale of Telecom Italia's prized Brazilian unit TIM Participacoes - an idea opposed by Bernabe, some board members and trade unions - to fund domestic investments.
"The proposed changes to Telecom's controlling shareholder structure may provide it with an opportunity to de-lever its balance sheet, which could lead to a significant positive change in strategy," Goldman Sachs analysts said in a note.
Bernabe, whose attempts to bring new investors on board had been rejected, had failed to obtain backing for his planned fundraising from the group's core investors, who deemed his plans non-credible, sources said, without saying why.
Telefonica, itself burdened with nearly 50 billion euros of debt while its German arm is in the midst of a costly acquisition, is seen by analysts as more inclined to support asset sales.
Trade unions have said under Telefonica up to 16,000 jobs - or 30 percent of the domestic workforce - could be at risk.
The sale of whole or part of the Brazilian unit, whose stock market value is some $11 billion, would bring in welcome cash for Telecom Italia and could help avoid a costly credit rating downgrade to "junk" status.
The new management team will also have to handle the sensitive issue of spinning off Telecom Italia's domestic fixed-line network, a complex project approved in July which was liked by some Italian politicians but not by Telefonica.
Telecom Italia shares were down 1.3 percent at 0.63 euros by 1216 GMT on Wednesday. The stock has bounced from a year's low of 0.4655 set in August but remains well below earlier peaks. In 2000 for instance it got as high as 9.554.
(Editing by Lisa Jucca and David Holmes)