UPDATE 1-Turk Telekom bids to buy rest of mobile firm Avea

(Recasts, adds analyst comment, changes slug for media clients)

By Ceyda Caglayan

ISTANBUL, April 22 (Reuters) - Turk Telekom offered on Wednesday to buy the remaining $300 million stake itdoesn't already own in mobile company Avea, a deal that wouldallow it to avoid having to float the struggling wireless firm.

Saudi-owned Turk Telekom, which also reported a 93 percentdrop in quarterly earnings, owns 90 percent of Turkey'sthird-largest mobile company, with the remainder held by lenderIS Bank and other investors.

Under a 2006 shareholder agreement, IS Bank retains theright to demand an initial public offering this year, a floationthat would likely be hampered by Avea's weak earnings, analystssaid.

"Even if Avea is advancing towards profitability, right nowit is still not profitable," said Toygun Onaran, an analyst atTEB Invest. "It is logical for IS Bank to want to offload theshares."

Turk Telekom did not say how much it would pay for the Aveastake, which it said had a "nominal value" of 820 million lira($300 million). That would value the company at $3 billion.That's a "very high" valuation, Onaran said, adding he estimatedAvea was worth around 40 percent of that.

Like many telephone companies, Turk Telekom faces a gradualdecline in demand for fixed-line services, meaning theperformance of its mobile arm is critical.

But Avea is in a tough position as the third player in amarket dominated by Turkcell and, to a lesser extent,Britain's Vodafone.

Turk Telekom's majority shareholder, Saudi Oger, faces asimilar fight in South Africa, where it owns struggling mobilecompany Cell C, which is also third-ranked in acompetitive market.

The fixed-line company reported a big fall in first- quarternet profit, hit by higher capital spending and the sharp declinein the Turkish lira. It has overseas operations andmost of its currency exposure come from financial liabilitiesand trade payables, it said.

Turk Telekom said it was "continuing to evaluate"participation in a tender for 4G frequencies, the bids for whichare due on May 26.

The future of that tender was thrown into doubt this week,when President Tayyip Erdogan said Turkey should wait and thenjump straight to 5G. ($1 = 2.6872 liras) (Additional reporting by Can Sezer and Daren Butler; writing byDavid Dolan)