Shares in BT rose sharply yesterday amid speculation over a possible £20 billion (€29.14 billion ) takeover bid.

The jump followed a report in the Times in which an unnamed representative of a private equity firm said it had looked at BT as a potential bid target.

However, the representative added that the firm had encountered obstacles ranging from the financial structure of such a large deal to BT's pension fund deficit.

BT dismissed the takeover talk, saying: "It is totally speculative ... we have had no approaches."

Nevertheless, the company's share price was up 4 per cent in lunchtime trading, at 216.25p.

Analysts were sceptical about any move for BT, although a research note from Credit Suisse First Boston said the telecommunications giant was cheap compared with its peers.

The bigger problem for private equity firms would be BT's large pension liabilities, which stood at around £4.7 billion before tax at the end of March last year.

"That, to me, is the problem," Stuart Gordon, of ABN Amro, told Reuters.

"Private equity groups are notoriously shy of taking on huge pension deficits - and as deficits go, there are not many bigger than this."

What makes BT attractive to venture capitalists, however, is its steady cash flow, which could be used to pay off debt needed to fund the acquisition.

Bidders could also sell other BT assets, such as its network, to help fund the deal.

A private equity firm bid for BT would dwarf previous such deals in the UK.

The biggest private equity buyout of a British company so far was Texas Pacific's £2.5 billion takeover of Allied Domecq's pub estate in 1999.