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UPDATE 1-Italy's Atlantia to discuss govt ultimatum on motorway licence Tuesday

(Recasts, adds sources)

ROME/MILAN, Sept 28 (Reuters) - The board of Atlantia will meet on Tuesday to reply to an ultimatum by Italy’s government to resolve a bitter dispute over the infrastructure group’s toll-road business, three sources familiar with the matter said.

Rome is ready to revoke the lucrative concession held by the Benetton-backed group’s Autostrade per l’Italia unit if Atlantia fails to agree on a deal with the state by Wednesday, a government source said on Sunday.

The board of Autostrade is also due to meet on Tuesday on the issue, the sources said.

Rome’s coalition government has been threatening to strip Autostrade of its contract to manage 3,000 km (1,850 miles) of Italian toll-roads since a bridge operated by the company collapsed in Genoa two years ago killing 43 people.

Revoking the concession is a complex step that would entangle the parties in a fresh legal war. But they have so far been unable to overcome the impasse over the ownership of the motorway business.

The two sides are at loggerheads over how to execute a plan they agreed in mid-July to cede control of Autostrade to state lender Cassa Depositi e Prestiti (CDP).

Challenging the government, Atlantia last Thursday said it would press ahead with the sale of its 88% stake in Autostrade either through an auction or spinning off the stake and listing it.

On Friday it kicked off the sale process when its banks sent letters to all parties potentially interested in Autostrade asking them to submit non-binding bids by Dec. 16, one of the sources said.

Italian broker Fidentiis said the latest flare-up had brought back the risk of the concession revocation, which had receded with the July accord.

“At this point it seems clear that Atlantia wants to go its own way and therefore takes the risk of a long legal battle with the government,” it wrote. (Reporting by Stefano Bernabei, Francesca Landini, Stephen Jewkes and Giancarlo Navach in Milan, writing by Giulia Segreti; editing by Jason Neely and Keith Weir)

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