Telefonica, a Spain-based telecommunications company, has recently offered to buy KPN's German E-Plus unit with cash and shares of O2, Telefonica's German unit. The information was shared by three undisclosed sources familiar with the deal.

The deal is currently worth 6.6 billion USD (5 billion EUR). Telefonica, according to one of the sources, is planning on issuing hybrid debt for capital increase to help finance the deal.

KPN would be retaining 15-30 percent of its stake in the business even after the merger, the sources confirmed. KPN, owned and managed by Mexican Carlos Slim, has confirmed ongoing negotiations concerning the sale of its German unit, E-Plus and Telefonica announced that it was in talks about a deal in Germany. However, neither company confirmed the involvement of the other.

"At this stage the outcome is not yet clear. Further announcements will be made, if and when appropriate," KPN stated earlier.

Telefonica stated that no agreements or deals have been made as of yet.