Uralkali Agrees on $7.8 Billion Takeover of Silvinit
Uralkali to Buy Silvinit for Shares, $1.4 Billion Cash
Hannelore Foerster/Bloomberg
OAO Uralkali agreed to acquire domestic rival OAO Silvinit for cash and shares to form the world’s largest maker of the crop nutrient after Canada’s Potash Corp. of Saskatchewan.
OAO Uralkali agreed to acquire domestic rival OAO Silvinit for cash and shares to form the world’s largest maker of the crop nutrient after Canada’s Potash Corp. of Saskatchewan. Photographer: Hannelore Foerster/Bloomberg
OAO Uralkali, Russia’s largest potash producer by market value, agreed to buy OAO Silvinit for $7.8 billion in cash and shares to benefit from rising demand.
Uralkali will purchase 20 percent of Silvinit from Otkritie Financial Corp. for $1.4 billion, or $894.50 a share, the Berezniki-based company said today in a statement. It will buy the rest for new shares worth $6.4 billion as of Dec. 13.
The takeover is the third-largest announced this year in basic materials after Newcrest Mining Ltd.’s purchase of Lihir Gold Ltd. and Vedanta Resources Plc’s proposed Cairn India Ltd. acquisition, Bloomberg data show. The combined entity would be worth $23.9 billion, based on Dec. 17 prices, said Uralkali, which expects to complete the deal in early May 2011.
Potash producers are consolidating as an increase in grain prices, driven up this year by drought in Russia, flooding in Canada and parched fields in Kazakhstan and Europe, boosts fertilizer purchases by farmers. Uralkali and Silvinit combined would account for 17 percent of global potash output, creating the second-largest producer after Potash Corp. of Saskatchewan Inc., according to U.K.-based industry consultant Fertecon Ltd.
The acquisition is “attractive” for Uralkali minority stockholders, Anna Kupriyanova, a Moscow-based analyst at UralSib Capital, wrote today in a note. For Silvinit, it “translates into a share price below the current market -- a negative for Silvinit minorities,” she said.
Shares Slide
Silvinit slid as much as 15 percent to 26,615.01 rubles in Moscow trading, the biggest decline 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 in Uralkali for each ordinary stock in Silvinit they own, and 51.8 shares for each preferred security, according to the statement. VTB Capital Plc and Goldman Sachs International are advising Uralkali, while Merrill Lynch International is advising Silvinit.
The cash offered is 10.15 times Silvinit’s trailing 12- month earnings before interest, tax, depreciation and amortization and the stocks 11.6 times, according to data compiled by Bloomberg. That compares with the 20.87 times Ebitda cash bid by BHP Billiton Ltd. for Potash Corp. of Saskatchewan Inc. in August that was quashed by the Canadian government.
Uralkali may sell as much as 50 billion rubles ($1.6 billion) of bonds to fund the deal and issue 1.2 billion new shares, adding to the 2.1 billion outstanding, Chief Executive Officer Pavel Grachev said today on a conference call. Uralkali will seek antitrust approval for the deal this week and both companies’ shareholders will vote on the tie-up on Feb. 4.
Kerimov Control
Russian billionaire Suleiman Kerimov and his partners took controlling stakes 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 billion rubles on Dec. 17, compared with Uralkali’s 457 billion rubles.
A merger will have a “positive effect” on the market, Potash Corp. Chief Executive Officer Bill Doyle told analysts on Dec. 15. Potash Corp., based in Saskatoon, Canada, last month fought off BHP Billiton’s $40 billion takeover proposal.
The eight-largest potash miners, whose market control already exceeds that of oil cartel OPEC, have sought to tighten their grip on prices of potash, a form of potassium used to boost crop yields. Uralkali exports through Belarusian Potash Co., which controls about 30 percent of global trade.
Silvinit has traded through International Potash Co. and is discussing a “transition period” before switching, Silvinit CEO Vladislav Baumgertner said on the conference call.
Double Output
Uralkali and Silvinit both mine fields at the Vernekamskoye deposit in Perm, near the Ural mountains, which has the world’s second-largest reserves, according to Uralkali’s website. Both companies doubled output in the first half as fertilizer use recovered from a global economic slump, with Uralkali producing 2.42 million metric tons and Silvinit 2.57 million tons.
The two combined have the capacity to produce 10.6 million tons in 2010, behind Potash Corp. and Plymouth, Minnesota-based Mosaic Co., according to Uralkali. The Russian companies will boost annual output by 2.4 million tons by 2012, Grachev said.
Uralkali posted net income of $274 million in the first half under international standards, while Silvinit reported a profit of $261 million using Russian methods.
To contact the reporters on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net; Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net.
To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net.
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