Shares in Silvinit rather than Uralkali look the best way to play the potash sector consolidation in the former Soviet Union which could create the world's top producer of the nutrient, analysts at broker Rye, Man & Gor said.

Suleiman Kerimov, who heads a cabal in charge of Uralkali, has taken a "positive" step in reportedly focusing his merger efforts on Silivinit, Russia's biggest potash producer, rather than metals groups, such as Norilsk Nickel, also said to be in the frame.

"Only Silvinit would offer clear synergy potential, as opposed to value destruction" for Uralkali, Russia's second-ranked potash group, RMG analyst Constanin Yuminov said.

The potential deal - over which Mr Kerimov is said to be in talks with Peter Kondrashov, the main Silvinit shareholder - offers "significant" potential for creating merger benefits, through crunching together logistics and trading operations.

'Likely to overpay'

However, there was a risk that value created from the deal, which would create a company controlling mor than 40% of global potash exports, would flow in the main to Silvinit shareholders, given that Uralkali was "likely to overpay" for control of its bigger rival.

"The potash business is an oligopoly, so there are few assets to choose from and high barriers to entry," Mr Yuminov said.

Furthermore, Silvinit shares left listed in Moscow would lose some of the discount of 25-30% to Urakali the company has held "due to low liquidity and transparency" under its current leadership.

Another buyer may also be pursuing Silvinit, the Vedemosti newspaper reported.

Tie-up too far?

Mr Kerimov is said to be attempting a three-way tie also incorporating Belaruskali, the Belarusian potash group, to form a sector leader, overtaking Canada's PotashCorp.

However, a Belaruskali deal looked less likely, given strained relations between Minsk and Moscow, and the price of some $20-30bn Belarus has put on the company, more than Uralkali or PotashCorp are worth in terms of value per tonne of production.

Analysts at VTB said that "such a huge merger would require stronger political support than we believe it could obtain in the current situation".

"Moreover, Belarus is seeking to sell no more than a minority stake."