By Elvira Pollina

MILAN (Reuters) – Telecom Italia (MI:) The board of directors meets Sunday to respond to KKR’s 10.8 billion Euro ($12 billion) offer to buy the company. This comes amid increasing pressure from investors to join talks following a failed turnaround plan by management.

KKR offered to buy the phone monopoly at a non-binding price last November. It was 0.505 euros per share. Telecom Italia shares now trade at 0.30 euros, having fallen to 0.22 on Monday.

The choices for TIM are straightforward: accept talks with the U.S. privat equity fund or decline its offer.

A compromise could be reached, however, whereby TIM (whose major shareholder Vivendi OTC:) considers this approach undervalued and seeks to engage in talks with KKR on deepening their existing cooperation while still remaining independent.

KKR is currently on hold longer than 3 months because of the latest boardroom crisis in which debt-laden TIM (in which CDP state lender) was also a significant investor.

New chief Pietro Labriola, a veteran TIM executive, last week revealed his own standalone plan aimed at unlocking value by separating TIM’s wholesale operations from its service arm to pursue with M&A deals.

Labriola was backed in part by Vivendi. He said that although KKR’s plans for TIM were similar, he believed doing it internally would generate greater value for investors.

COMPROMISE AVAILABLE?

Although Labriola’s strategy was unanimously supported by the board, some institutional investors and independent members are leery of dismissing KKR.

KKR is also being urged by minority investors. It is asking for the support of both the government and the fund, along with a four week due diligence process prior to formally submitting a bid.

KKR has already been involved in TIM. Last year, KKR paid 1.8billion euros for a 37.5% share of its secondary network.

Goldman Sachs, NYSE:), and LionTree (advisors to the TIM board) will complete a review on KKR’s proposal, which will then be weighed against TIMs in-house restructuring by Sunday.

Labriola’s plan will facilitate a long-awaited merger of TIM’s fixed assets network and those of rival fibre optic competitor Open Fiber. This move would be supported by CDP, which holds a 10% share in TIM.

Two sources close to the matter stated that investors in TIM could enjoy an upside of one euro per share if they are given this scenario.