Nokia Oyj, the Finnish telecommunications company, is in talks to buy Alcatel-Lucent, the companies said in a statement on Tuesday, a potential deal that could create a European telecoms equipment group worth over 40 billion euros ($42.16 billion).
In a joint announcement, the pair said, "There can be no certainty at this stage that these discussions will result in any agreement or transaction."
The statement came after reports that Nokia may buy France-based Alcatel's mobile networks arm started doing the rounds.
French business daily Les Echos on Monday, citing a source close to the matter, reported that Nokia was close to buying Alcatel-Lucent's mobile networks unit to boost its core business especially in the United States and China.
The two companies had declined to comment then.
Bloomberg, however, had reported later on Monday that the companies had examined a full takeover of the Paris-based telecom equipment maker by Nokia, but that the Finland-based firm was more likely to buy the wireless business.
Les Echos added that any deal would be closely watched by French politicians, as Alcatel-Lucent was considered a strategic business.
Alcatel and Nokia had held sporadic talks for years before the Finnish company sold its struggling handset business to Microsoft Corp a year ago, leaving Nokia to concentrate on developing the networks business.
Germany's Manager Magazin reported in December that the two companies had revived talks on a possible merger.
Alcatel competes with Sweden's Ericsson and China's Huawei in addition to Nokia. It has not achieved regular profit since its creation in 2006 because it is smaller in the mobile sector than rivals and faces tough competition from Chinese vendors.
(Additional reporting by Ankush Sharma in Bengaluru, James Regan and Jean-Baptiste Vey in Paris and Jussi Rosendahl in Helsinki) - Reuters