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Russian merger seeks to challenge Potash Corp.

An Uralkali mine


A Russian billionaire is merging two Russian fertilizer companies to create the biggest rival to industry leader Potash Corp. of Saskatchewan Inc.

Suleiman Kerimov's challenge to Potash Corp.'s dominance of the potash industry has been in the works since at least the summer. But the formalization of his plan to merge Uralkali with Silvinit signals that Russia wants to create national mining champions that can compete globally.

Mr. Kerimov's fertilizer ambitions are so great that he reportedly considered a bid for Potash Corp., in partnership with China's Sinochem, in the fall. At the time, Anglo-Australian mining giant BHP Billiton was in hot pursuit of the Saskatchewan company, though was forced to drop its $38.6-billion (U.S.) bid in November after Ottawa determined the takeover would not be in Canada's interests.

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Since then the potash markets have come back to life after a punishing downturn in the financial crisis and Mr. Kerimov has been plotting a complex stock market deal that would see Uralkali, Russia's biggest potash miner, buy the smaller Silvinit. He and his wealthy partners locked up the two companies by buying stakes in both over the summer.

The deal announced Monday will see Uralkali buy 20 per cent of Silvinit from Otkritie Financial Corp., one of Russia's largest banks, for $1.4-billion. It will issue new shares worth $6.4-billion to buy the rest of Silvinit. Based on recent prices, the enlarged company would have a market value of about $24-billion. Mr. Kerimov would own about 16 per cent of the new fertilizer giant.

Analysts said the deal will create operational synergies but heavily favours Uralkali, which is getting Silvinit at a significant discount. The deal is expected to close in May.

The new company, to be called Uralkali, would control about 17 per cent of global potash output, according to industry consultant Fertecon. Potash Corp. controls about 30 per cent.

Moscow's Renaissance Capital has estimated that, together, Uralkali and Silvinit would have 11.5 million tonnes of capacity next year. Postash Corp. has 12 million tonnes of capacity and is adding another 7.1 million tonnes by 2014.

In a conference call on Monday, Uralkali chief executive officer Pavel Grachev said the company is watching the potash mergers and acquisitions market "with interest," but is planning no asset purchases while it focuses on the merger.

Mr. Kerimov, 44, is a low-profile tycoon with a flamboyant lifestyle. In 2006, he crashed his black Ferrari Enzo, one of the world's fastest sports cars, in Nice, France. The car caught fire and he was severely injured.

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As one of Russia's wealthiest men, he has straddled both the political and business worlds. From 1999 to 2007, he was a deputy in the State Duma, the Russian parliament's lower chamber. He is now a member of the Federal Council, the upper chamber, and is said to be close to the Kremlin.

His market timing is impressive. He sold many of his Russian assets, including stakes in Gazprom, the Russian natural gas giant, and government-controlled Sberbank, just before the 2008 financial collapse. In early 2009, he bought 37 per cent of Polyus Gold, Russia's largest gold producer. Since then, gold prices have gone to $1,400 an ounce from about $900.

Potash prices have been rising along with food prices in recent months. Analysts expect potash demand to rise steadily as farmers use more fertilizer to increase crop yields. The United Nations says food production will have to increase by 70 per cent by 2050 to meet soaring population growth and diets that are richer in protein.

Potash is produced in only a dozen countries and mine development is taking off. Having lost its bid for Potash Corp., BHP is taking steps to develop the world's biggest potash mine, called Jansen, about 140 kilometres east of Saskatoon. Last week, BHP submitted the project's environmental impact statement to the Saskatchewan government for approval.

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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