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UPDATE 1-Mediaset and Vivendi near deal to end legal stand-off -sources

Elvira Pollina and Gwénaëlle Barzic

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MILAN/PARIS, Nov 28 (Reuters) - Mediaset and Vivendi are close ending a long-running legal stand-off with a deal that would see the French group sell a 20% stake in the Italian broadcaster, four sources said on Thursday, less than 24 hours ahead of a court-imposed deadline.

The two media groups have been locked in a series of legal disputes for more than three years and recently fell out over Mediaset's plans to create a pan-European TV champion.

A deal would free Mediaset to press ahead with merging its Italian and Spanish units into a Dutch holding company.

It would see Vivendi, which is Mediaset's second-biggest shareholder and worth ten-times more than the Italian broadcaster, sell two-thirds of its 29% stake to the holding company, called MediaForEurope (MFE), two of the sources said.

"We are almost there," added one, speaking on condition of anonymity because the talks are confidential and ongoing.

Vivendi's stake would be valued at a nominal 2.77 euros ($3.05) per share but would be bumped up to around 3 euros after interest payments and a special dividend Mediaset has already said it would pay to MFE shareholders, the sources said.

Mediaset has called a board meeting for Friday to discuss a possible deal with Vivendi, another source said.

A Milan judge last week gave the two companies until Nov. 29 to settle their disagreements over MFE after attempts to reach an accord failed.

STAND-OFF

Milan-based Mediaset, controlled by former Italian prime minister Silvio Berlusconi's family, wants to use MFE to build alliances with other broadcasters in Europe, including Germany's ProSiebenSat.1.

It sees this as crucial to compete with streaming services like Netflix and web giants like Google.

Vivendi opposes the 4 billion euro ($4.4 billion) deal, saying Mediaset's governance plans for MFE would be detrimental to minority shareholders.

One of the sticking points to a deal was disagreement over a five-year standstill clause Mediaset wants to impose to prevent Vivendi from buying back MFE shares, one source said.

Vivendi, led by billionaire Vincent Bollore, is expected to hang on to the remaining stake of almost 10%, at least for now, in case opportunities came along, some bankers said.

However, another source close to the matter said the French group, which has also been looking to create a southern European media powerhouse, could eventually sell all of its stake.

Mediaset shares closed 0.9% higher at 2.7890 euros. ($1 = 0.9073 euros) (Reporting by Elvira Pollina, Gianluca Semeraro in Milan and Gwenaelle Barzic in Paris; additional reporting by Alfredo Faieta, editing by Silvia Aloisi and Alexander Smith)