MILAN (Reuters) - Telecom Italia (TIM) TLIT.MI plans to take legal action to prevent a vote on board candidates proposed by activist fund Elliott on April 24 as top shareholder Vivendi VIV.PA fights to keep its grip on Italy's biggest phone group.

FILE PHOTO: Telecom Italia logo is seen at the headquarters in Milan, Italy, May 25, 2016. REUTERS/Stefano Rellandini/File Photo/File Photo

French media group Vivendi and Elliott, which has just raised its interest in TIM to 8.8 percent, were meant to face off for the first time at the April shareholder meeting.

Paul Singer’s fund had called for six Vivendi-nominated board members, including TIM Chairman and Vivendi CEO Arnaud de Puyfontaine, to be replaced with well-known Italian business leaders in a bid to improve governance and strategy.

But following Elliott’s move, eight board members nominated by Vivendi resigned, triggering a vote on a full board renewal at a separate shareholder meeting called for May 4.

Despite the mass resignations, TIM’s statutory auditors included Elliott’s proposal in the agenda for the April meeting - a decision TIM’s board on Monday called “unlawful”, “erroneous and particularly serious”, vowing to take legal action against the auditors “to protect the rights and interests of all shareholders”.

TIM said the auditors maintained that their decision was legitimate and that they would issue a separate statement.

Delaying the standoff until May gives Vivendi, which owns 24 percent of TIM, a better chance of ensuring it remains represented on the board as shareholders will have to decide between lists presented by Elliott and the French investor.

Meanwhile Elliott believes there will be no need to choose a new board in May if its candidates are elected in April.

TIM’s plan for legal action comes after three proxy advisers including Glass Lewis and ISS recommended shareholders back Elliott’s board proposal, criticizing the way the French investor has run Italy’s biggest phone group in recent years.

TIM has lost a quarter of its market value since Vivendi first took a stake in mid-2015 and increasingly tightened its grip on Italy’s biggest telecoms group, raising concerns in Rome over an asset it considers strategic.

“Vivendi appears to be more of a liability than an asset for TIM,” ISS said in a report on Monday. “TIM has had its fair share of management and board turnover over the last few years, and Vivendi’s influence has not brought about stability.”

Elliott has said with a more independent board it would push to convert TIM’s savings shares, return to paying dividends and work on strategic moves such as a listing and partial sale of TIM’s network to cut debt and unlock value.

TRUMP CARD

Vivendi has already filed a slate with candidates ahead of the May vote, while Elliott has until midnight to do so.

Surprisingly, Vivendi, which owns 24 percent of TIM, did little to allay concerns raised against its nominees in the past by changing few names and keeping de Puyfontaine as chairman, although this time in a non-executive role.

The trump card in Vivendi’s slate remains the inclusion of Chief Executive Amos Genish, who despite being an ally of Vivendi Chairman Vincent Bollore is well respected, because of his track record as a telecoms veteran and dealmaker in Brazil.

All three proxy advisers recommended investors back Genish, who was co-opted by the board in September after the resignation of his predecessor. Shareholders need to approve his appointment for him to continue beyond the April AGM.

This may prove a conundrum for some investors who may want to weaken Vivendi’s grip but will not want to lose Genish, whose three-year business plan presented last month was welcomed.

Funds association Assogestioni has opted not to present its own slate in a move that could play in Elliott’s favor.

Elliott told investors on Monday it was in favor of TIM’s existing management team, including Genish and his business plan. However, Genish may not want to remain if he cannot count on majority backing from TIM’s board, sources close to the matter have said.

The fund has already begun scouting for a possible successor in case he leaves, three sources close to the matter said.

“But it is complicated because Genish enjoys wide support, he is at the center of the battle,” one of the sources said.

After a volatile start, shares in Telecom Italia TLIT.MI closed up 0.1 percent, compared with a 0.5 percent rise in Milan's blue-chip index .FTMIB. Around 2.6 percent of TIM's capital traded on Monday.