American telecommunications giant AT&T dropped out of negotiations for Telecom Italia (TI) on Monday as TI shareholders were gathered together for a tumultuous annual meeting.
Sources close to Olimpia, the holding group which has an 18% controlling stake in TI, confirmed that AT&T had withdrawn from talks but that Mexico's America Movil remained interested.
AT&T and America Movil have been negotiating with Pirelli to buy 66% of the tyre group's 80% stake in Olimpia.
The potential operation drew protests from many small shareholders, as well as trade unions and elements in the centre-left government of Premier Romano Prodi.
Guido Rossi quit as TI chairman earlier this month after Pirelli moved to sack him, in part because of disagreements over the sale talks.
Meanwhile, Intesa Sanpaolo, Italy's biggest bank, confirmed on Monday that it was interested in a temporary investment in TI.
Intesa Sanpaolo chief executive Corrado Passera said that "TI is a very important company and we could consider share participation if the investment is worth it for our company and shareholders and if it makes sense in terms of Telecom's development".
"We have made temporary investments before and I don't see why we shouldn't do it in this case as well," he said.
The developments came as almost 300 shareholders representing more than a third of all TI shares were gathered together for a key meeting which was expected to continue through the night and into the early hours of the morning.
The shareholders must elect a new board which will be tasked with helping debt-laden TI - Italy's biggest telecommunications company and the fifth largest in Europe - recover from a period of management reshuffles and fierce rows over company strategy.
TI's acting chairman Carlo Buora remained optimistic about the company's future, telling shareholders in opening the marathon session that "TI is not a sick patient requiring treatment. The company is healthy and can and must do better".
"It has a loyal customer base on the domestic market and is consolidating its position abroad," he said.
Current TI board member Pasquale Pistorio, the former chairman of semiconductor firm STMicroelectronics, is widely tipped to become TI's next chairman and is reported to be Olimpia's preferred choice.
Olimpia nominates four-fifths of the board under TI's statutes, while minority shareholders pick the remaining fifth.
Top Italian political satirist and TI shareholder Beppe Grillo, who was among those to take the floor during Monday's meeting, protested against Olimpia's ability to control TI with just an 18% stake.
He called on TI management to resign together with Pirelli chief Marco Tronchetti Provera, who abruptly quit as TI chairman last September after clashing with the government over company strategy.
Grillo attacked TI's ownership structure, investment policies and asset sales in his 15-minute speech, urging other small shareholders to turn over their voting rights to him.
Meanwhile, unions representing TI's 84,000 workers organised a rally outside the meeting to protest against TI's possible sale.
"We want TI to remain Italian... Tronchetti Provera has failed in his management of the company," said the unions, who went on to call a one-day strike in May.
Rossi, a respected troubleshooter and corporate lawyer who oversaw TI's privatisation in 1997 under Prodi's first government, was brought in to replace Tronchetti Provera at the TI helm.
He complained just before his April 6 resignation that he had not even been consulted about the talks with AT&T and America Movil.
Rossi left after his name was omitted from a list of proposed new board members to be voted on at the shareholders' meeting.
