OIBR.C Oi SA

MILAN—Italy's market regulator said Friday that Xavier Niel, the founder of French telecom firm Iliad SA, holds warrants that amount to a 15.1% stake in Telecom Italia SpA, further extending the French businessman's interest in the struggling Italian company.

In addition to holding options to buy a 11.2% share of Telecom Italia, disclosed on Thursday, the regulator said on Friday that Mr. Niel has increased his potential stake with more warrants, bringing his potential interest in the Italian telecommunications company to 15.1%. All of the options—most of which can be exercised beginning next summer—are for shares with voting rights.

Mr. Niel's interest in Telecom Italia has raised speculation concerning a possible joint bid or a takeover battle with the largest shareholder in Telecom Italia: Vincent Bolloré . Mr. Bolloré , another prominent French businessman, has amassed a 20% stake in Telecom Italia through Vivendi SA, the media company where he is chairman and the largest shareholder.

People familiar with the thinking of Mr. Bolloré and Vivendi say the two billionaires haven't been coordinating or working together on Telecom Italia. But a spokesman for Vivendi said on Friday that: "We'd be delighted to work with anyone who has the company's long-term interests at heart." He reiterated Vivendi's position that it is a "long-term shareholder" in the Italian firm.

Mr. Niel didn't respond Friday to a request for comment.

The interest in Telecom Italia comes as Europe's telecom companies push for more consolidation amid intense competition from low-cost entrants, changing consumer habits and regulation that has kept pricing low. After months of intense M&A activity in the sector, the European Union has signaled a tougher stance on telecoms mergers, saying it does not necessarily result in a better deal for consumers.

Telecom Italia, which right now doesn't have any other large individual shareholders apart from Vivendi and Mr. Niel, is hoping for a turnaround after years of poor performance, which has depressed the stock—now one of the cheapest in the European telecom sector.

After years of harsh tensions among shareholders and a lack of a clear strategic direction, it has resolved conflicts among investors and internal struggles for control, making its shareholding structure more stable. It has also recently started to invest more in its domestic business, seen as key to a significant improvement of its business in the near future.

The operator, a former monopoly which still owns the largest market share in Italy, said earlier this year that it plans to invest €14.5 billion ($15.9 billion) as part of its three-year plan, with about three-fourths of that in Italy. But as of the first-half of this year, revenues were still falling, keeping the company's shares depressed.

Investor interest in Telecom Italia could also stem from its second market, Brazil, analysts say. Revenue there is also shrinking, but several bidders are circling the Brazilian unit, dubbed TIM Participacoes.

In 2014, its Brazilian competitor Oi SA and local investment bank BTG Pactual agreed to work with the Brazilian unit of Telefó nica SA and Claro, owned by Mexico's America Movil SAB de CV, to make a combined offer to buy TIM Participacoes, and split up its assets. So far nothing further has happened with regard to this deal.

Earlier this week, Russian investment firm LetterOne proposed investing $4 billion in Oi, but added that the offer is conditional on the success of a potential merger with TIM Participacoes.

According to a person familiar with the matter, any action or consolidation in Brazil won't happen before next summer, which is when most of Mr. Niel's options can be exercised.

The news of Mr. Niel's interest in Telecom Italia prompted the Italian firm's stock price to jump on Thursday—it closed 8.7% higher—because of speculation the purchase could lead to a takeover battle. Shares added as much as 4% Friday on news that Mr. Niel's had increased his stake.

Write to Manuela Mesco at manuela.mesco@wsj.com and Nick Kostov at Nick.Kostov@wsj.com

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(END) Dow Jones Newswires

October 30, 2015 08:55 ET (12:55 GMT)

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