The trigger could be as soon as June 15, when financial groups Mediobanca (>> Mediobanca Group), Assicurazioni Generali (>> Assicurazioni Generali SpA) and Intesa Sanpaolo (>> Intesa Sanpaolo SpA) could end a 2007 shareholder pact in Telco, the holding company that controls Telecom Italia (>> Telecom Italia SpA).

The tight control of Telco's core shareholders, led by Spanish telecom Telefonica (>> Telefonica SA), has discouraged most other investors from buying in.

Marco Fossati, whose investment vehicle Findim owns 5 percent of the telecom, tried but failed in October to change Telecom Italia's board, which he said acted in the interests of the core shareholders, not the rest.

But the recent appointment of an all-independent board and the likely dismantling of Telco make further change possible.

Generali, which owns 19.3 percent of Telco, said on Wednesday it would exercise its right to withdraw from the pact at the first available opportunity next week. [ID:nL5N0OS5HI]

One activist investor, U.S. fund Amber Capital, already has its foot in the door, with a small stake of under 1 percent, but one of its fund managers, Giorgio Martorelli, said he expects more to join it when the pact is dismantled.

And there is a packed agenda for those that do.

   "What activists can do for Telecom Italia is to support initiatives to cut the company's debt pile, reduce its exposure to Brazil and align management's incentives with shareholders' value creation," Martorelli said.

Telecom Italia needs to attract new investors to help tackle its hefty 27.5 billion euros ($37 billion) of debt.

Amber also wants to convert Telecom Italia's savings shares into ordinary stock to increase liquidity and simplify the capital structure.

ACTIVISTS SET SIGHTS ON EUROPE

Activist shareholders – mainly hedge funds, asset managers and wealthy entrepreneurs - tend to target underperforming or poorly managed companies and put pressure on the board to simplify corporate policy, cut costs and sell underperforming units to enhance the value of their investment.

They have been mostly a U.S. phenomenon, but that is changing.

    "U.S. activists are switching their attention to Europe," Knight Vinke Chief Executive Eric Knight told Reuters.

Italy has seen little activity so far, but the demise of shareholder pacts like Telco's is creating opportunities.

RCS MediaGroup (>> RCS MediaGroup SpA), which owns newspaper Corriere della Sera, wound up a shareholder pact blocking 60 percent of the company in October, and disputes among long-term investors Diego Della Valle and John Elkann could make the company vulnerable to activists, Martorelli said.

Gruppo Save (>> SAVE SpA), the operator of Venice's Marco Polo airport, has also recently reorganised its shareholder pact, encouraging activists like Amber to seek even greater change.

Amber has also been pushing changes in Italy's biggest builder Salini Impregilo (>> Salini Impregilo SpA) and dairy group Parmalat (>> Parmalat SpA).

Telecom Italia chairman Giuseppe Recchi gives them a cautious welcome.

"There is room for activists in Italy as long as they have constructive proposals," he told Reuters, adding that they needed to take a long-term view, rather than merely seek quick profits.

(Editing by Will Waterman)

By Pamela Barbaglia