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UPDATE 1-Mediaset approves shield to takeovers as Vivendi feud simmers

(Recasts, adds quotes and details)

MILAN, June 28 (Reuters) - Italy's Mediaset approved a share buyback program on Wednesday which will allow the Italian broadcaster to shield itself from any hostile takeover as a dispute with France's Vivendi simmers.

Mediaset is controlled by the family of former prime minister Silvio Berlusconi with a 39.53 percent stake, but media giant Vivendi became its second largest shareholder in December, after swiftly building a 28.8 percent position.

The stake-building deepened the rift between the two groups, already involved in a legal battle after Vivendi pulled out of an 800 million euro ($857 million) contract last July that would have given it full control of Mediaset's pay-TV unit.

Though Vivendi claimed the stake-building was not intended as hostile but rather a sign of long-term interest, the move infuriated the Berlusconi family and the company said it risked paralyzing operations.

"It's more than just a company dispute, we are facing an attempted hostile takeover that would damage a national champion crucial in the television sector," said Mediaset chairman Fedele Confalonieri speaking at the start of the annual meeting.

With the approval of the buyback program Mediaset, which currently holds 3.79 percent of its own shares, will be able to buy up to 10 percent of the company's shares, tightening the grip of Berlusconi's family on the group.

But its structure means it will not force Mediaset's large shareholders -- including Berlusconi's holding Fininvest -- to launch a mandatory bid for the group should their stake surpass the allowed legal threshold as result of the buyback.

Mediaset Chief Executive Pier Silvio Berlusconi said to date Fininvest had no reason to increase its stake.

VIVENDI STAYS AWAY

Vivendi, headed by French businessman Vincent Bollore, chose not to attend the annual meeting, forfeiting its right to vote.

A spokesperson for the company declined to comment when asked about the reasons but a person close to the matter said the French media group had preferred not to go to avoid "disruption at a delicate moment."

The approval of the buyback program is also seen as a move by Mediaset to partially offset any future sale of shares by Vivendi.

The French group might decide to sell part of its stake in the broadcaster after the Italian communications authority said Vivendi was in breach of antitrust rules in the telecoms and media sector.

While waiting for the outcome of an appeal it filed against the regulator's decision, Vivendi is expected to freeze its voting rights in the Italian broadcaster at just below 10 percent, a source said earlier this month.

Confalonieri told shareholders the group had filed a new claim against Vivendi on June 8, alleging contract violation, unfair competition and breaking TV pluralism laws.

"The first filing was linked to the failed pay-TV deal, this second one is a consequence of everything that came afterwards...," said Pier Silvio Berlusconi referring to Vivendi's later stakebuilding and the regulator's decision.

The new accusations are expected to flow into the existing case, a source with knowledge of the matter told Reuters.

"If you want peace, prepare for war," Confalonieri told reporters, citing a Latin proverb. (Reporting by Giulia Segreti, additional reporting by Gwenaelle Barzic in Paris, editing by Stephen Jewkes)