Iride and Enia agreed to merge in October aiming to create one of Italy's biggest multi-service utilities.
Iride earlier said in a brief statement its board decided more preparatory work and in-depth study were needed for the merger to go through, citing "recent events on the capital markets and in sectors where Iride operates".
The source said Turin and Genoa city halls which control the utility were slow to approve the merger, which now would suffer a delay, probably of one month.
"Compared to the initially expected date, the end of March, now a delay of about a month can be expected. In any case, the deal should be closed in the first half (of 2009)", the source said.
The boards of the two utilities were expected to vote on Dec. 19 on extraordinary dividends associated with the merger and to set end-January dates for shareholder meetings to vote on the deal, sources close to the matter said last week.
A source close to Enia -- which is controlled by 72 town halls with the city of Reggio Emilia its main shareholder -- said on Monday the utility was ready to approve a dividend and set a date for a shareholder vote on the merger.
Enia's main shareholder has already approved the merger and two other key shareholders, the city halls of Parma and Piacenza, are expected to give their approvals in the next few days, the source said.
But the source close to Iride said a dividend was not on the agenda of Iride's board meeting on Friday and it was premature to convene shareholders to approve the merger.
"In our opinion, this situation amplifies the execution risk of the whole process," Santander analysts wrote in a note, adding that the increasing uncertainty about the merger has already been priced in.
Shares in Iride were down 1.2 percent at 0.93 euros while Enia shares erased earlier gains and were down 2.7 percent at 3.495 euros at 1052 GMT, while the DJ Stoxx index of European utilities was down 1.9 percent.
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