The merger of Silvinit and Uralkali to form a Russian potash champion could create a stack of value just from improving investor appeal, besides countering a potential hit to the nutrient's prices from BHP Billiton plans.

The tie-up between Russia's top potash groups, whose merger has been speculated following a switch in controlling shareholders, would create some $2.4bn in value just by placing Silvinit assets on the same multiple of earnings that Uralkali already achieves, analysts at Moscow-based Uralsib said.

Currently, Silvinit trades at a discount thanks to the illiquidity of its shares, and a perception of limited transparency in its operations.

Antidote to BHP proposal

The tie-up could get a further fillip from ditching a discount of up to 20% in the price Silvinit achieved from its exports too.

"The unification of export trading policy might add up to $60 a tonne" to prices, and 7% to the revenues of the tie-up, the broker said.

Indeed, by channelling Silvinit's potash exports through the Belarusian Potash Company consortium, of which Uralkali is already a member, the tie-up would counteract a potential hit to prices represented by BHP's proposals should it succeed in its pursuit of PotashCorp.

BHP has proposed taking Canada's PotashCorp out of Canpotex, the other main potash export consortium, a move seen as likely to depress prices by breaking the market power of the North American producers.

For the Belarusian Potash Company, "improved pricing power should help� maintain its export price-setting ability in the event of a takeover of PotashCorp by BHP,", Uralsib said in a report.

Mining champion?

Overall, the broker saw a Silvinit-Uralkali merger having an upside of some 21%, or some $3.3bn, to the $15.8bn sum of their current stock market values � even before any deal benefits from measures such as cutting out duplicated costs are factored in.

Uralkali shares looked the better route to exploiting this prize, thanks to their greater liquidity, Uralsib said.

However, one risk to the scenario is the potential for further mergers with metals groups, as speculated on in the Russian media, to form a Russian champion in mining, which would mean diluting the "high and stable cash flows" from potash sales.

A Silvinit-Uralkali deal has appeared on the cards since Suleiman Kerimov, a Russian senator, and investors close to him bought controlling stakes in both groups.

Two weeks ago, Vladislav Baumgertner, a former head of Uralkali, took over as interim chief executive of Silvinit.

Silvinit shares closed 1.4% lower at 19,900 roubles  in Moscow, valuing the group's equity at about $6.1bn. Uralkali stock finished 1.3% higher at 142.30 roubles, giving it a stockmarket value of some $9.7m.