4th UPDATE: Vodafone Gets Approach For Egypt Stake - Sources

Telecom Egypt SAE (ETEL.CI) has made an informal approach to Vodafone Group PLC (VOD) about buying out the U.K. company's controlling stake in Vodafone Egypt Telecommunications Co. (VODE-CI), sources familiar with the situation said Friday.

Vodafone Group has a 55% stake in Vodafone Egypt, and state-owned Telecom Egypt holds a 45% stake. No other parties are involved, said a person familiar with the situation.

Telecom Egypt, the only provider of fixed-line services in the country, said in March it wanted to increase its exposure to the mobile market. Chief Executive Tarek Tantawy said he was considering the acquisition of an integrated telecom company, and that the company would consider bidding for a fourth mobile license in Egypt if it came to the market.

Vodafone has long been under pressure from the market to clarify its strategy regarding minority stakes in the U.S., France, China and South Africa as well as Egypt.

Telecom Egypt could pay around GBP3 billion, or six times earnings before interest, tax, depreciation and amortization, for Vodafone's stake, said Sanford Bernstein analyst Robin Bienenstock.

She added in a research note that a sale was likely, given that Vodafone Chief Executive Victorio Colao "made it clear that his core business was Europe, Sub-Saharan Africa and India. Egypt is none of those."

Collins Stewart said it would welcome a rationalization of Vodafone's portfolio with a "timely" sale, while another London analyst said the proceeds would provide an extra cushion to Vodafone's balance sheet.

Telekom Egypt confirmed that Chief Executive Tarek Tantawy had asked the board and management of the company to explore options to maximise its exposure to the mobile sector in Egypt, including increasing its stake in Vodafone Egypt or applying for a fourth mobile license if it became available.

In an emailed statement, it said no decisions had yet been taken.

Vodafone declined to comment.

Vodafone Egypt competes with market leader Egyptian Co. for Mobile Services (EMOB.CI), also known as Mobinil, and Etisalat Egypt, a subsidiary of United Arab Emirates-based Emirates Telecommunications Corp. (ETISALAT.AD)

France Telecom (FTE) and Orascom Telecom (ORTE.CI) said April 15 they had reached a settlement over the ownership of Mobinil, brokered by the Egyptian government, ending a long running and complicated legal dispute in the Egyptian courts and international arbitration.

Price wars between mobile operators in Egypt are reducing margins and revenue. Mobile line subscribers totaled 55.85 million in January this year, a 32% rise on the year earlier, according to data from the Egyptian Ministry of Communications and Information Technology website, while mobile penetration was 73%.

In late April, Mobinil's net profit fell 2% in the first quarter on slowing economic growth and the impact of intensifying competition.

Vodafone Group on Tuesday said it more than doubled its full-year net profit, but it booked a GBP2.3 billion impairment on its Indian operations, underscoring the wider effects of intensifying competition in its emerging markets.

At 1334 GMT, Vodafone shares were down 1.2% or 2p at 128 pence, against a 2% decline in the FTSE 100.

-By Molly Neal, Dow Jones Newswires; 44 (0) 207 842 9358; [e-mail]

(Jessica Hodgson in London and Shereen El Gazzar in Cairo contributed to this article.)