Russian potash firms to merge in $24B pact

Two Russian mining companies have agreed to join together in a $24-billion US merger to create the world's second-largest potash company.

OAO Uralkali will pay more than $8 billion US in cash and shares to scoop up rival OAO Silvinit. The company will seek antitrust approval for the deal from the Russian government later this week.

The new firm would contribute roughly 17 per cent of the world's supply of potash, according to U.K.-based industry consultant Fertecon Ltd.Though Uralkali is the larger company overall, Silvinit's current potash output is larger than that of the company that is taking it over.

Both companies have doubled their output in the past year in the face of higher prices for the crop nutrient, Bloomberg reported.

Potash is a naturally occurring fertilizer that improves crop yields. As the global population increases, it has become a strategic resource to help meet food needs.

A series of droughts have played havoc with global grain prices, driving up the price for fertilizers such as potash. That in turn has set off a round of consolidation in the sector.

Earlier this year, Australian-English mining giant BHP Billiton moved for Potash Corporation of Saskatchewan in a $40-billion transaction. Industry Canada ended upscuttling that deal on the grounds that the purchase didn't meet the "net benefit" to Canada test as outlined in the Investment Canada Act that governs all foreign takeover of firms worth more than $299 million.

In November, smaller Russianminer OAO PhosAgro looked into making a bid for PotashCorp.

Even before the potash drama played out in Canada, Russian billionaire Suleiman Kerimov acquired stakes in bothUralkali and Silvinitduring the summer with a view to merging them.

The Russian merger will have a "positive effect" on the market, PotashCorp CEO Bill Doyle told analysts on a recent conference call.

Shares in both Russian firms were lower in reaction to the news Monday, while PotashCorp shares on the TSX were as much as two per cent higher tomore than $142.