UPDATE 2-Israel's ECI Telecom may be bought for over $1 bln

(Adds analyst comments, capital gains, background)

By Tova Cohen

TEL AVIV, June 17 (Reuters) - Israeli telecom equipment maker ECI Telecom ECIL.O said on Sunday it was in talks with a group of investors led by Swarth Investments regarding a potential acquisition of ECI for $10 per share in cash.

ECI has about 118 million shares outstanding, which would make the deal worth $1.18 billion. Its shares closed at $8.92 on Nasdaq on Friday, up 3.8 percent.

Swarth is an investment vehicle controlled by telecom businessman Shaul Shani.

Daniel Meron, an analyst at RBC Capital Markets, said he believed $10 a share was a fair price for ECI.

"I don't think there will be a competing bid, given the tepid business momentum and lack of strategic differentiation regarding its pipeline," Meron said.

He rates ECI as "sector perform" with a $9 price target.

ECI's sales in the first quarter fell to $155 million from $162 million a year earlier, though earnings excluding one-time items rose to $9.7 million, or 8 cents a share, from $7.1 million, or 6 cents a share, a year earlier.

The company comprises two divisions after a major restructuring in recent years -- telecom and data networking equipment and broadband access equipment.

The broadband division is dependent on two main customers -- Deutsche Telekom (DTEGn.DE) and France Telecom (FTE.PA) -- which cut back on their purchases in 2006, though ECI has said business was climbing back this year.

In an effort to expand to the United States, ECI recently forged a deal with Motorola (MOT.N), the No. 2 maker of cell phones, to sell ECI's broadband network products.

ECI is 28 percent held by Israeli holding company Koor Industries (KOR.TA) KOR.N. Koor estimated that if a deal were completed at $10 a share, it would post a capital gain of 598 million shekels ($143.2 million).

"There can be no assurance at this stage as to whether this transaction will be consummated, and if consummated what the actual consideration would be," ECI said in a statement.

Any deal would be subject to regulatory and other customary approvals and conditions.

"ECI does not intend to make any further comment, or respond to any inquiries, until a binding agreement, if any, is reached with respect to a purchase, or talks have been terminated," the statement said.