Telefonica pulls out of KPN merger

NEWS Telefonica has called off merger negotiations with Dutch telco KPN following pressure from the Spanish government. Telefonica was warned last week by the Spanish government that it would use its right to veto the deal unless the Dutch government sold off their 44 per cent stake in KPN. Spanish bank BBVA and La Caixa were also said to have been against the merger as it would have diluted their control of Telefonica from 8.7 per cent to five per cent and five per cent to 2.5 per cent respectively. Juan Villalonga, CEO at Telefonica, said a compromise could not be reached after eight of the 20 board members rejected the deal. Commenting on the collapse of negotiations, Paul Smits, executive director at KPN, said Telefonica was a company divided by internal problems and would not have made a solid base for a merger.