MILAN (Reuters) - Activist investor Elliott proposed to oust the French chairman of Telecom Italia and install leaders of Italy's corporate establishment on the board as part of an intensifying campaign to force a shakeup at the former state phone monopoly.

Elliott said last week it had taken a stake in TIM and was ready to replace board members in a bid to improve strategy, value and governance - a move widely seen as a challenge to the way top shareholder Vivendi runs the company.

The fund proposed to include a motion on the agenda of an April 24 shareholder meeting that seeks to replace six board members originally nominated by Vivendi, including TIM Chairman and Vivendi CEO Arnaud de Puyfontaine, TIM said on Thursday.

It also proposed replacing them with well-known names in Italian business, including Fulvio Conti, a former head of utility Enel and former TIM finance director.

As part of the request, Elliott declared owning 2.53 percent of TIM, just above a threshold required to propose amendments, a copy of the document showed. It also reserved the right to request further changes to the AGM agenda.

The inclusion of well-connected Italian business people in its slate suggests Elliott wants to win favours with other investors and especially with the Italian government, which has objected to Vivendi's growing influence at the company.

That included the ousting of two CEOs as well as the appointment of two-thirds of TIM's board and de Puyfontaine as executive chairman. Rome later used the so-called "golden power" last year to have a say in some strategic decisions at TIM.

To challenge Vivendi's 24 percent stake, Elliott has been on a charm offensive with some of the biggest institutional investors in Italy and abroad. The fund has reached out to main Italian funds, including Mediolanum, Fideuram and Eurizon, and other stakeholders abroad, two sources close to the matter said.

The funds did not comment.

TIM has lost more than one-third of its market value since Vivendi first took a stake in mid-2015, unnerving some investors. Yet despite disappointment over the way Vivendi has run the company, fund backing is not a given, the people said.

"There is a wait and see approach among institutional investors, Italian and foreign ones. They want to see what exactly Elliott wants," one of the sources said.

The funds are also curious what newly appointed Chief Executive Amos Genish - a telecoms veteran put forward by Vivendi - will deliver, the person added.

TIM has not paid a dividend since 2012, but last week Genish held out the promise of richer shareholder returns with a new three-year strategy.

Elliott has yet to outline its exact proposals for TIM, but sources said it wants a majority of independent board members, plans to push for the conversion of TIM's savings shares into ordinary stock and seek a spin-off of the soon-to-be-created network company.

Vivendi told Reuters on Wednesday it would be ready to support an alternative strategy to boost TIM's short-term share price, even as it remained committed to its final goal of creating an Italian telecoms and content champion.

"If you buy TIM shares now, you need to have a long-term view because the rally already happened on Elliott's entry," an investor at a Milan-based asset manager said.

"I'd sit on the fence instead."

(This story refiles to fix typo in final quote.)

(Reporting by Agnieszka Flak, Maria Pia Quaglia, Stephen Jewkes; Editing by Toby Chopra)

Stocks treated in this article : Vivendi, Enel, Telecom Italia