UPDATE: Vodafone Gets Approach For Egypt Stake - Sources

Telecom Egypt SAE (ETEL.CI) has approached 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.

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 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%.

Telecom Egypt made an "informal approach" to Vodafone, said a person familiar with the situation, and no other parties are involved.

Investment Bank UBS (UBS) suggested last month that Telecom Egypt could pay up to 6 times enterprise value/earnings before interest, tax, depreciation and amortization for Vodafone's stake in Vodafone Egypt.

Vodafone and Telecom Egypt both declined to comment.

At 0919 GMT, Vodafone's shares were trading up 1.9% at 132 pence in a flat London market.

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

(Jessica Hodgson contributed to this article.)