Millicom's statement came hours after Reuters first reported on the negotiations. The deal would create one of the largest telecommunications carriers in Latin America, giving the combined company more heft to compete with some of the region's biggest players, such as America Movil, Telefonica and AT&T Inc.
Millicom said it had received a "preliminary highly conditional non-binding proposal" for all of its shares from Liberty Latin America, which is backed by U.S. media and telecommunications mogul John Malone.
"There is no certainty that a transaction will materialise, nor as to the terms, timing or form of any possible transaction," Millicom said. Liberty Latin America declined to comment.
Millicom shares rose 5 percent on the news to close at $70.55 in New York, giving the company a market capitalisation of $7.2 billion (£5.6 billion). Liberty Latin America shares rose 2 percent to $16.90, valuing it at about $3.1 billion.
The potential deal reflects the importance of scale in the Latin American telecommunications market. Inflation, currency fluctuations, corruption and political instability are just some of the challenges facing regional operators.
Millicom offers mobile services to about 51 million customers under the brand Tigo, in nine Latin American countries and the African countries of Chad and Tanzania. Swedish investment company Kinnevik had 37.2 percent voting control over Millicom as of the end of December. Kinnevik has been trimming its wireless tower portfolio around the world.
Millicom is listed in Stockholm but also started trading on the Nasdaq earlier this month.
Liberty Latin America, which operates in more than 20 countries across Latin America and the Caribbean, was spun off from Malone's Liberty Global Plc last year. Its consumer brands include VTR, Flow, Liberty, Más Móvil, BTC and Cabletica.
Malone is the largest shareholder of Charter Communications Inc, the second largest U.S. cable company. He controls about a quarter of the voting power in Liberty Latin America.
(Reporting by Liana B. Baker in New York and Arno Schuetze in Frankfurt; Additional reporting by Pamela Barbaglia in London; editing by Nick Zieminski, Steve Orlofsky and Richard Chang)
By Liana B. Baker and Arno Schuetze
