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Germany's O2 and E-Plus in Merger Talks

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Spain's Telefonica is in talks with the Dutch telco, KPN to merge their respective German subsidiaries, with a deal said to be imminent.

KPB has confirmed that it is in talks to sell its E-Plus mobile network in Germany but declined to name the potential buyer. That buyer has been widely reported to be Telefonica, which owns a majority stake in O2 Germany.

If agreed, the deal is expected to see Telefonica buying E-Plus from KPN and merging it with O2 Germany -- in exchange KPN would get a stake in O2 Germany.

The deal would be part cash to help KPN pay down its debt, and part-shares to ensure that Telefonica's own heavy debt burden doesn't rise too far. As O2 Germany is listed on the local stock market, KPN could then sell its shares in the company at a later date.

The merged mobile network would overtake Vodafone and T-Mobile to become the largest network in Germany, by subscriber numbers and have a market valuation of around EUR16 billion.

The two companies have been in talks about possible mergers of their German networks for many years, and a more recent attempt by KPN to sell the E-Plus division was swiftly dropped.

Although the networks would be able to generate significant cost savings from merging, there is the likelihood that if they fully merge, then they may need to surrender one of their 3G licenses and buy back the spectrum in an open auction.

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Tags: telefonica  o2  e-plus  kpn  Germany