By Elvira Pollina

MILAN, March 31 (Reuters) - France's Vivendi VIV.PA will drop its legal challenge against the sale of Telecom Italia's TLIT.MI fixed-line network as part of a deal to sell most of its stake in the telecoms group to Italy's Poste PST.MI, two sources with knowledge of the matter told Reuters.

On Saturday Vivendi agreed to drastically cut its stake in TIM, selling most of it to state-backed financial conglomerate and former postal monopoly Poste Italiane, which would become TIM's single largest investor with a 24.8% holding.

As part of the agreement with Poste, Paris-listed Vivendi will drop a legal challenge against TIM's decision to sell its fixed-line network when the 684 million euro stake deal is completed in the first half of this year, the sources said.

The sale of the network, worth up to 22 billion euros, to a consortium led by U.S. fund KKR KKR.N was completed in July 2024 with the backing of Italy's government.

While stabilising TIM's finances, the grid sale strained relations between TIM and its top investor Vivendi, which subsequently decided to divest its 24% holding.

Vivendi turned to a Milan court in December 2023 to challenge the TIM board's decision to sell the grid, saying it should have been put to a shareholder vote.

In January 2023 Vivendi, which is controlled by French billionaire Vincent Bollore, withdrew its representative from TIM's board, distancing itself from TIM's strategy centred on the sale of the former phone monopoly network assets.

With a remaining 2.5% stake in TIM, Vivendi has no plan to play any active role in TIM at present, a source close to Vivendi told Reuters.

Poste Italiane and Telecom Italia declined to comment.

Earlier this year, the Milan court ruled that Vivendi did not have grounds to pursue legal action, saying it had failed to exercise its right to call a shareholder meeting. Vivendi appealed against the rejection of its claim last month.

(Reporting by Elvira Pollina; Editing by Jan Harvey)

((elvira.pollina@thomsonreuters.com;))