updated 10/3/2005 8:22:01 AM ET 2005-10-03T12:22:01

Shares in Dutch telecom Royal KPN NV rose sharply Monday after a published report said Spanish telecom Telefonica SA was prepared to pay 20 billion euros ($24.1 billion) to acquire KPN.

Telefonica spokespeople denied the report in The Wall Street Journal, and KPN declined comment. Still, KPN shares rose 5.2 percent to 7.85 euros after the news.

The Wall Street Journal cited unnamed sources saying Telefonica was prepared to pay 20 euros ($24.1 billion) for KPN, the Netherlands' former state telecom.

KPN's current market capitalization is around 18.3 billion euros ($22 billion).

"Both companies are assembling teams of advisers as a first stage in preparing for negotiations," the WSJ report said.

A takeover would give Telefonica operations in most major European markets, giving it an edge in servicing business clients and pressuring other major telecoms in France, Germany and Britain to merge.

Telefonica and KPN almost merged once before in 2000, but that deal was derailed at the last minute due to objections from members of Telefonica's board _ reportedly due to worries the Dutch state still wielded too much influence over KPN, with a 43 percent stake.

The decision proved wise, as telecommunications valuations began deflating soon afterward. KPN went to the brink of bankruptcy, having borrowed heavily to finance the purchase of German mobile telephone operator E-Plus and for national licenses to offer next-generation telephony services.

The company was saved by an emergency share issue that was backed by the Dutch state, raising questions about whether the European telecommunications market was truly deregulated.

The Dutch government's stake in KPN has since fallen to 14 percent due to the dilution and further sales.

After the bailout and a change of management, KPN gradually improved its stability by selling noncore businesses, reducing dividends and curtailing further acquisitions. In August, KPN reported second quarter profit of 239 million euros ($287.8 million). Net debt was 8.2 billion euros ($9.9 billion) at the end of June.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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