By Mathieu Rosemain, Gwénaëlle Barzic and Agnieszka Flak
PARIS/MILAN (Reuters) - French media giant Vivendi (PA:VIV) and Italian broadcaster Mediaset (MI:MS) are negotiating behind closed doors to forge an alternative partnership despite an ongoing war of words over a disputed pay-tv deal, three sources close to the matter told Reuters.
"Talks are going on, despite appearances," one of the sources said. "It's a crucial strategic alliance for both Vivendi and Mediaset."
Vivendi, led by billionaire Vincent Bollore, said on Thursday that the binding share-swap agreement it signed in April with Mediaset for its Premium pay-TV unit could be void after Sept. 30, citing the initial regulatory calendar to obtain the go-ahead from the European Commission.
Mediaset and its controlling shareholder Fininvest swiftly rejected Vivendi's assertions in two separate statements.
"Fininvest reaffirms the absolute linearity and correctness of its and Mediaset's behavior," the investment holding, which is 61-percent owned by former Italian premier Silvio Berlusconi, said. "It completely rejects the reconstruction of facts supplied by Vivendi today which it finds groundless."
Mediaset said that Vivendi's statement was "devoid of any legal or commercial grounds".
Vivendi and Mediaset signed an agreement in April, which would give the French group full control of Mediaset's pay-TV unit Premium and hand the two companies a 3.5 percent stake in each other.
But Vivendi said in July it had backed out of the agreement, saying it no longer wanted the whole pay-TV unit but only a 20 percent stake. It also said it intended to acquire around 15 percent of Mediaset shares in the next three years.
Separately, Vivendi said it would implement a 300 million euro ($338 million) cost-cutting plan to stem losses from the French channels of its pay-TV unit Canal Plus. The goal is to reach breakeven in 2018 for Canal Plus channels in France, it added.
Losses at Canal Plus' French business weighed on Vivendi's results. The group reported lower-than-expected quarterly core operating profit, partly due to increased losses at its French channels.
Earnings before interest, taxes and amortization (EBITA) for the three months that ended in June plummeted by 41.5 percent to 174 million euros, missing an average estimate in a Reuters poll of 247 million euros.
($1 = 0.8868 euros)