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ROME -- Speculation is growing in Italy about a possible alliance between the Italy's Internet giant Tiscali and France's Vivendi Universal.

Though both companies are mum about the talks, several Italian dailies have reported a deal is in the works. The Italian financial daily MF reported Tiscali is in "the pole position for a European alliance" with Vivendi.

If the deal goes through, it will represent a change of tactics for Tiscali, which has used a growth-by-acquisition strategy to become Europe's second-largest Internet service provider. But it is Tiscali that would be dwarfed in any kind of alliance with Vivendi.

Rumors about alliances for Vivendi started circulating after the company said it would sell its $700 million stake in AOL France back to AOL Time Warner. The company's interest in AOL France dropped off when merger talks between the two giants failed last year.

According to the contract it signed with AOL, Vivendi can't align itself with another Internet company for 90 days after selling its stake. But reports are that the company will look to join forces with an Internet company almost immediately after that period expires.

"Tiscali has become the only large ISP in Europe that isn't aligned with a major telecommunications or media company," Douglas Edwards, a European technology sector analyst with Hildebrandt & Ferrar, pointed out.

There have also been newspaper reports that Vivendi was exploring alliance talks with U.S. super-portal Yahoo!, which could be in need of a partner following the plummet in its share price over the last year and changes in senior management.

Copyright March 2001, Crain Communications Inc.

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