Telefonica S.A. (NYSE:TEF) (MCE:TEF), the largest telecommunications operator in Europe is in advance negotiations to acquired E-Plus, a subsidiary of Koninklijke KPN N.V. (OTCMKTS:KKPNY) (AMS:KPN) in Germany. A report from the Financial Times indicated that the two companies might be able to strike a deal by Monday based on information from a source familiar with the issue.

Telefonica

Merger between Telefonica and Koninklijke would strengthen competitiveness

Telefonica S.A. (NYSE:TEF) (MCE:TEF) and Koninklijke KPN N.V. (OTCMKTS:KKPNY) (AMS:KPN) have almost the same market share in the German market, and observers in the industry believe that a merger would strengthen the competitiveness of the companies against Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE) and Vodafone Group Plc (NASDAQ:VOD) (LON:VOD), which have bigger presence in the country.

The merger between Koninklijke KPN N.V. (OTCMKTS:KKPNY) (AMS:KPN) E-Plus and Telefonica S.A. (NYSE:TEF) (MCE:TEF) would value the combined company at €16 billion. The sources said that the two companies are still discussing the details of the transactions, and indicated that the negotiations are progressing but they are uncertain if both parties might end up signing a deal.

According to the source, the board of directors of Telefonica S.A. (NYSE:TEF) (MCE:TEF) and Koninklijke KPN N.V. (OTCMKTS:KKPNY) (AMS:KPN) are scheduled to meet on Monday to approve the acquisition of E-Plus for €5 billion. Under the deal, Koninklijke KPN N.V. (OTCMKTS:KKPNY) (AMS:KPN) will also receive a small stake in Telefónica Deutschland.

Carlos Slim supports the agreement

Telefonica S.A. (NYSE:TEF) (MCE:TEF) will acquire 50 percent stake in the combine company. According to one of sources, Carlos Slim, the largest shareholder of Koninklijke KPN N.V. (OTCMKTS:KKPNY) (AMS:KPN) supports the agreement.

Koninklijke KPN N.V. (OTCMKTS:KKPNY) (AMS:KPN) issued a brief statement confirming its negotiation with Telefónica S.A. (ADR) (NYSE:TEF). The company said, “At this stage the outcome is not yet clear. Further announcements will be made, if and when appropriate.”

The Financial Times noted that the combined company with an enterprise value of €16 billion would beat Deutsche Telekom AG (FRA:DTE) (PINK:DTEGY) (ETR:DTE)’s T-Mobile and Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) as the largest mobile operator in Germany in terms of the number of subscribers. It will also reduce the number of mobile operators in the country to three.

Last week, Telefonica Brasil SA (NYSE:VIV), a subsidiary of Telefonica S.A. (NYSE:TEF) (MCE:TEF) signed an agreement to provide health content to Ebix Inc (NASDAQ:EBIX).