By Elvira Pollina
MILAN, Sept 22 (Reuters) - Mediaset MS.MI and its second largest investor Vivendi VIV.PA are working on a potential deal to end a long-running legal row and revive the Italian broadcaster's European growth strategy, two sources close to the matter said.
Controlled by the family of former Italian prime minister Silvio Berlusconi, Mediaset had been targeting expansion in Europe to cope with stiffer competition in the industry from streaming services such as Netflix NFLX.O
But Vivendi's opposition has forced Mediaset to freeze plans to create a Dutch holding company to pursue alliances in Europe.
The two groups have been locked in a fight since 2016 when Vivendi ditched an accord to buy Mediaset's pay-TV unit and built a 29% stake which Mediaset considers hostile.
In a bid to break the stalemate, the heads of the two groups resumed contacts this month.
The two sources said the groups were looking at ways to relaunch Mediaset's pan-European TV project, which the Milanese broadcaster considers vital, with Vivendi's backing.
A solution is not yet in sight and the uncertainty created by the pandemic complicates matters, the sources said.
In the meantime, the legal dispute triggered by the collapsed pay-TV deal rumbles on and a closed-door hearing took place in Milan on Tuesday. A ruling is not expected before next year, giving the parties time to seek a compromise.
One of the sources said Mediaset may consider dropping its multi-billion euro damages claims if a solution emerged that fostered the group's development.
Mediaset had planned to fold its domestic and Spanish businesses into the Dutch vehicle, and eventually also add its 24.2% stake in Germany's ProSiebenSat.1 PSMGn.DE.
ProSieben shares rose 5% on Tuesday after Italian daily Il Messaggero reported that a potential deal may entail Mediaset raising its stake in the Germany group, which has so far shunned the prospect of closer integration.
Both Mediaset and Vivendi declined to comment.
(Reporting by Elvira Pollina Editing by Valentina Za and Keith Weir)
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