* Telefonica, KPN boards meet Monday on deal - sources
* Telefonica would pay $6 bln and give KPN stake in new firm
* KPN confirms in talks to sell business
* Telefonica confirms negotiating a deal
* Deal likely to face EU antitrust review
By Andrés González and Leila Abboud
MADRID/LONDON, July 22 (Reuters) - Telefonica andKPN are in talks to combine their German mobilebusinesses in a deal worth over $6 billion that would help themcompete with bigger competitors Deutsche Telekom andVodafone.
Under the terms being discussed, Spain's Telefonica wouldpay the Dutch telecoms operator $6 billion in cash and KPN wouldget a stake of between 15 and 30 percent in the newly-createdcompany, two people familiar with the matter said.
Telefonica would issue hybrid debt to help finance the deal,another person said. Two sources told Reuters the boards of KPNand Telefonica would meet on Monday and were expected to approvea tie-up.
KPN, which is controlled by Mexican tycoon Carlos Slim,confirmed in a statement that it was in talks to sell its Germanbusiness, E-Plus, and Telefonica said it was involved innegotiations in Germany, but neither company mentioned theother.
"At this stage the outcome is not yet clear. Furtherannouncements will be made, if and when appropriate," KPN said.Telefonica said no deal had been closed.
Shares in KPN jumped 13 percent.
E-Plus and Telefonica's O2 Deutschland vie forthird place in Europe's biggest mobile market and both arefacing tough competition from their larger rivals. E-Plus cutits prices in January in an attempt to gain market share.
For KPN and its backer Slim, the world's richest man, amerger would help keep it competitive in Germany. It has smallermobile spectrum holdings and weaker coverage than itscompetitors.
For Telefonica, the deal would improve profitability in itsthird-biggest market in Europe after Spain and Britain.Combining the two businesses could bring synergies - costsavings and revenue gains - of 4 billion euros or more,according to analysts.
Both companies also need more firepower to invest in fourthgeneration wireless networks - KPN is in an especially weakposition because it has none of the best spectrum in 4G.
Telefonica already listed part of O2 Deutschland last yearin a drive to cut debt and raise cash as the group suffered fromits exposure to Spain's recession-hit economy.
The talks with KPN were first reported by the FinancialTimes. Slim's company America Movil and E-Plus declined tocomment.
FOUR WEEKS OF TALKS
America Movil competes head-to-head with Telefonica, whichis present across Latin America.
KPN and Telefonica have discussed a tie-up and sharing ofnetworks several times in the past decade, including just beforeSlim bought 28 percent of KPN last year. At that time, KPNsought a tie-up with Telefonica to avoid falling under Slim'scontrol.
Those talks fell apart at the last minute because ofvaluation and Telefonica's high debt, which made borrowingduring the euro zone crisis difficult.
This time the talks went much more quickly, two sourcessaid. They began in earnest over the past four weeks, since KPNcompleted a 3-billion-euro rights issue.
Telefonica's shares closed up 1.32 percent on the day at 10euros, while KPN's share price shot up 13 percent to 1.80 euros.The price of insuring KPN's debt fell by around 4 percent, whileTelefonica's credit default swaps (CDS) also tightened slightly.
KPN launched a 3 billion euro rights issue in April to helpreduce debt and invest more in its networks in the Netherlandsand in Germany.
The firm, with outstanding debt of 14.4 billion euros, alsocancelled its dividend for this year and next.
KPN will unveil its second-quarter results on Tuesdaymorning, with a Reuters consensus of 10 analysts expecting a 17percent fall in core profit, mainly due to a pronounced declinein its international mobile unit, of which Germany is thelargest part.
Although Telefonica is burdened with around 50 billion eurosof debt, it would do well to expand in a healthy market likeGermany to offset weakness in countries such as Spain.
Competition is heating up as consumers switch to smartphonesfrom basic handsets and operators shake up tariffs to focus ondata and raise spending on marketing.
A KPN-Telefonica tie-up is likely to attract scrutiny fromboth German authorities and Brussels regulators and the combinedcompany may be forced to offer remedies such as access forvirtual operators (MVNOs) or giving back spectrum.
"What I ask myself is what the regulator would do withthis," said analyst Jos Versteeg at Theodoor Gilissen privatebank. "In other countries, we've seen more operators entering.This would leave Germany without a real challenger."
Vodafone (VOD)
