MILAN/LONDON (Reuters) - French tycoon Vincent Bollore’s stated goal to create a southern European media empire faces defeat in Italy, despite pumping 5 billion euros ($5.9 billion) into his biggest foreign conquest, raising questions over whether the strategy ever existed.

FILE PHOTO: Vincent Bollore, Chairman of the Supervisory Board of media group Vivendi, speaks during the company's shareholders meeting in Paris, France, April 19, 2018. REUTERS/Charles Platiau/File Photo

Three years into the venture, the billionaire's media group Vivendi VIV.PA appears to have made more enemies than allies, estranging the Italian government and falling out with Silvio Berlusconi, the influential former prime minister and media magnate.

Vivendi also fought a losing battle this month with minority investors for boardroom control of Telecom Italia (TIM) TLIT.MI, the business it hoped would form a key platform for distributing music, video and gaming content.

“I never believed in this pan-European empire story,” a top-30 Vivendi investor told Reuters, saying the idea of cross-border synergies between media and telecoms companies was hard to follow.

“It’s a pure financial investment: Bollore sees an opportunity and tries to catch it; and then he’s telling a story that nobody really believes ... he’s been doing this his whole career, for decades.”

Vivendi insists strong European players are needed to not “be swallowed” by the big U.S. media giants. “If not, we are doomed,” CEO Arnaud de Puyfontaine said at a recent event.

But Vivendi’s failure to build a European powerhouse highlights the political challenges of stitching together national media assets, especially when the buyer limits itself to minority stakes without full control.

Ironically, big U.S. firms like Comcast CMCSA.O, Twenty-First Century Fox FOXA.O and video-streaming giant Netflix NFLX.O are closer to building European heavyweights, eclipsing Vivendi either with outright acquisitions or by using online platforms and vast content resources to extend their reach.

When it first became a TIM shareholder back in 2015, Vivendi said the phone group was a stepping stone to expanding in a market with significant growth prospects and strong appetite for quality content.

It chose Italy, saying the country shared its cultural roots and would help create Latin content to complement that of its Anglo-Saxon rivals.

‘MISSION IMPOSSIBLE’

But its aggressive stakebuilding at TIM and Italian broadcaster Mediaset MS.MI has ruffled feathers and strategic alliances remain elusive. The stocks never took off and the two investments carry a 1.3 billion euro loss on Vivendi's books.

“The plan to create a southern European media and telecoms giant is buried,” Mainfirst analyst Jean-Baptiste Sergeant said.

Italy’s industry minister said Vivendi had been an “awful” investor. Rome eventually stepped in to loosen Vivendi’s grip and even backed activist fund Elliott in its boardroom coup.

“For Vivendi, Italy has become mission impossible,” a banking source close to TIM said. “There is no quick fix ... in one word they’re stuck.”

Vivendi received a stake in TIM when it sold off Brazilian operator GVT to Telefonica TEF.MC. Bollore, already a long-term shareholder in investment bank Mediobanca MDBI.MI, "felt very comfortable in Italy", one source close to the matter said.

“He saw an opportunity and the stock was very cheap so he bought more,” the person said. “Originally this was a pure financial investment.”

Less than a year later Vivendi agreed to buy Mediaset’s pay-TV unit Premium, fuelling speculation of a future three-way alliance including TIM.

The deal also involved Vivendi and Mediaset - controlled by Berlusconi’s family - taking a stake in each other, thus cementing the ties between Bollore and the politician.

But the deal turned sour when Vivendi backtracked from the acquisition, calling Premium’s business plan unrealistic.

The two sides have been embroiled in a legal spat since, only aggravated by Vivendi buying more shares to become Mediaset’s second-largest shareholder after the Berlusconis.

Vivendi keeps reiterating it is a long-term industrial investor in TIM. It repeatedly shot down speculation it could sell its stake on to French telecoms group Orange ORAN.PA.

Any deal to sell the TIM stake to a rival looks unlikely, with its planned turnaround only at the start, and Bollore not in a position to negotiate a deal after facing graft allegations over his work in Africa, sources familiar with the matter said.

“Bollore has lost his credibility and he would not be in a position to sit down in front of government representatives and soothe concerns,” the banking source added. Bollore strongly denies the allegations.

A full takeover of either TIM or Mediaset is also out of the question, with Vivendi lacking the cash to pull it off.

A plan to create a content joint venture between TIM and Vivendi's pay-TV unit Canal+ was put on hold after opposition from some TIM board directors. TIM clinched a content deal with Mediaset instead, while a separate deal between the broadcaster and Sky SKYB.L signed in April isolated Vivendi further.

A chance to distribute pay-TV content over TIM’s fiber optic network is also at risk if U.S. hedge fund Elliott has its way and the infrastructure is spun off and TIM loses control.

To view a graphic on Vivendi and its Italian investments, click: reut.rs/2wOtcnv

TRACK RECORD

Yet despite the setbacks, Vivendi has no wish to exit Italy. Bollore brushed off any criticism over Italy, saying “we don’t count the chickens until they’re hatched”.

Many investors bet on Vivendi because of its UMG music label and what a potential listing could bring.

They see the Italy venture as a distraction, although they also trust that Bollore would exit at a profit, as happened when Vivendi sold its share of gaming group Ubisoft UBIP.PA.

“He’s playing Monopoly with the money available at Vivendi. You can decide not to play along, but our interests are aligned, his track record is not bad,” the first investor said.

Most investors expect Vivendi to sell out once TIM’s and Mediaset’s shares recover, although the size of the investments - it owns 24 percent of TIM and nearly 30 percent of Mediaset - makes finding a buyer difficult.

Despite a recent rally, TIM’s share price still trades 30 percent below the average price at which Vivendi entered.

“Bollore is pragmatic and rarely sticks around at companies he cannot control,” another Vivendi investor said, but added the industrialist never committed to a single plan. “It’s hard to underestimate Bollore because historically he pulls out rabbits out of the hat,” he added.

Still, looking at Italy, it’s hard to imagine how the 66-year-old can turn the tables in his favor.

Marina Berlusconi, Silvio’s eldest daughter, said Bollore and Vivendi had “behaved with the delicacy and composure of Attila” when they entered Italy.

But unlike the king of the Huns, they did not conquer an empire, and their strategy was “so well disguised that it makes you wonder if there is a strategy at all”.