Kazakhtelecom, Kazakhstan's largest fixed-line telecommunications operator, has applied for permission to buy a 75 percent stake in London- and Almaty-listed Kcell, the country's antitrust committee said last month.
Kazakhtelecom which also has a stake in Kcell's competitor, a joint venture with Tele2, has so far disclosed no details of its bid.
One source familiar with the bidding process said Kazakhtelecom's bid valued Kcell, the Central Asian country's biggest operator, at around $600 million.
Another source also familiar with the talks said the bid price was about 40 percent below Kcell's market capitalisation - which is around $1 billion.
Kazakhtelecom and Telia declined to comment on the matter.
Kcell's share price has surged about 47 percent since last June, prompting analysts to rate it as overvalued.
Russian brokerage Sberbank CIB said in a note last month Kcell was overvalued and had a "sell" recommendation on the shares. VTB Capital, another Russian brokerage, also rates Kcell as "sell".
Under Kazakh corporate law, if Kazakhtelecom takes over Kcell, it will have to offer to buy the remaining outstanding shares at the market price.
The 75-percent stake belongs to Telia and Fintur, Telia's joint venture with Turkcell. Telia has said it planned to sell its assets in Azerbaijan, Kazakhstan, Georgia and Moldova.
If successful and approved by the antitrust committee, Kazakhtelecom's bid would make it a major shareholder in companies which together control about 66 of the local mobile telecommunications market.
The oil-rich country's sovereign wealth fund, Samruk-Kazyna, has a 51.0 percent stake in Kazakhtelecom, part of which it plans to sell this year in its large-scale privatisation drive.
(Additional reporting by Mariya Gordeyeva in Almaty, Raushan Nurshayeva in Astana and Olof Swahnberg in Stockholm. Editing by Jane Merriman)
By Olzhas Auyezov