OAO Uralkali agreed to buy OAO Silvinit for $ 7.8 billion in cash and stock

OAO Uralkali agreed to buy OAO Silvinit for $ 7.8 billion in cash and stock to benefit from growing demand.

Uralkali buy 20 percent of Otkritie Silvinit Financial Corp. for $ 1.4 million, or $ 894.50 per share, the Berezniki-based company said in a statement. It will buy the remaining shares worth 6.4 billion U.S. dollars from 13 December.

The acquisition is the third largest this year announced in the base material after purchase s Newcrest Mining Ltd. Lihir Gold Ltd., and proposed Vedanta Resources Plc, the acquisition of Cairn India Ltd.. The combined entity would have a value of $ 23900000000, from December 17 prices, Uralkali said, it expects to complete the deal in early May 2011.

potash producers are being consolidated as an increase in grain prices, driven by drought this year in Russia, the floods in Canada and the dry fields in Kazakhstan and Europe, increasing the purchase of fertilizer by farmers. Uralkali and Silvinit combined represent 17 percent of global production of potash, creating the second largest producer after Potash Corp. of Saskatchewan Inc., according to UK-based industry consultant Fertecon Ltd.

The acquisition is "attractive" for minority shareholders Uralkali, Anna Kupriyanov, a Moscow-based analyst at UralSib Capital, wrote today in a note. To Silvinit, "translates to a price below the current market share - a refusal Silvinit minorities," he said.

Shares slide

Silvinit slipped to 15 percent, to 26,615.01 rubles in Moscow trading, the biggest drop in 19 months, before closing at 27,296.99 rubles. Uralkali fell 1.1 percent to 212.64 rubles.

Investors will receive 133.4 shares for each common share Uralkali in Silvinit of his property, and 51.8 shares for each preferred title, the statement said. VTB Capital Plc and Goldman Sachs International is advising Uralkali, while Merrill Lynch is advising International Silvinit.

The money offered is 10.15 times Silvinit end of 12 - month earnings before interest, taxes, depreciation and amortization and the populations of 11.6 times. That compares with 20.87 times cash offer EBITDA of BHP Billiton Ltd. for Potash Corp. of Saskatchewan Inc. in August that was overturned by the Canadian government.

Uralkali can sell up to 50 billion rubles ($ 1.6 billion) of bonds to finance the transaction and issue 1.2 billion new shares, adding to the 2.1 billion outstanding, CEO Pavel Grachev, said today a conference call. Uralkali seek antitrust approval of the offer this week and the shareholders of both companies will vote in the tiebreaker until 4 February.

Kerimov control

Russian billionaire Suleiman Kerimov and his companions took control of shares in Uralkali and Silvinit between June and August, with a view to a merger. Solikamsk based Silvinit, whose production exceeds that of Uralkali, was valued at 246 million rubles on December 17, compared with 457 billion rubles Uralkali.

The merger will have a "positive effect" on the market, Potash Corp. CEO Bill Doyle told analysts on 15 December. Potash Corp., based in Saskatoon, Canada, last month fought 40 billion U.S. dollars of BHP Billiton's proposed acquisition.

Potash miners eight largest, whose control of the market and exceeds the oil cartel OPEC has sought to strengthen its control over prices of potash, a form of potassium used to increase crop yields. Uralkali exports through Belarus Potash Co., which controls about 30 percent of world trade.

Silvinit has operated through the International Potash Co. and is discussing a "transitional period" before switching, general director Vladislav Baumgertner Silvinit said at the press conference.

Dual output

Uralkali and Silvinit two minefields in Vernekamskoye deposit in Perm near the Ural Mountains, which has the second largest reserves in the world, according to the website of Uralkali. Both companies has doubled production in the first half as the use of fertilizer was recovered from a global economic recession, with Uralkali produce 2.42 million tons and tons Silvinit 2,570,000.

The two combined have the capacity to produce 10.6 million tonnes in 2010, behind Potash Corp. and Plymouth, Minnesota-based Mosaic Co., according to Uralkali. Russian companies to increase the annual production of 2.4 million tonnes in 2012, Grachev said.

Uralkali reported net income of $ 274 million in the first half by international standards, while Silvinit reported a profit of 261 million U.S. dollars by using methods of Russia.