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PhosAgro to Merge Ammophos and Cherepovetsky Azot

14 November 2011
Moscow – PhosAgro (MICEX, RTS, LSE: PHOR) (“the Company”), a leading global vertically integrated phosphate-based fertilizer producer, announces it is considering plans to merge two of its subsidiaries, OJSC Ammophos and OJSC Cherepovetsky Azot.

The planned transaction would create a new company that assumes all the rights and obligations of the two subsidiaries. Under the proposed transaction, shareholders of Ammophos and Cherepovetsky Azot would receive shares of the new company, and the old companies would cease to exist as legal entities. The reorganisation is expected to complete in July-August 2012.

PhosAgro CEO Maxim Volkov said:  "The proposed merger of Ammophos and Cherepovetsky Azot marks an important step for PhosAgro. By simplifying the structure of the company we hope to reduce the administrative costs incurred by maintaining two separate legal entities.  This should also simplify the production process, as a significant portion of Cherepovetsky Azot's output is used within the group.  Following the merger, production output is planned to be recorded on the balance sheet of a single legal entity, whereas at present we carry out intra-group transactions.  Finally, we are confident that the merger will further increase transparency: the unified accounting department at the new subsidiary will simplify our financial reporting system for shareholders and regulatory bodies.  We also plan to consider adding Agro-Cherepovets, another PhosAgro subsidiary, to the newly-created company at some point in the future.”

The Company has initiated meetings of the board of directors of Ammophos and the supervisory board of Cherepovetsky Azot to convene extraordinary general meetings of shareholders (EGMs) to vote on the merger.  PhosAgro expects that the shareholders of Ammophos and Cherepovetsky Azot will approve the proposal.

Should the proposal be approved, shareholders who voted against the reorganisation or who did not vote will have the right to have their shares bought out in the merger process.

PhosAgro management believes that the merger may create synergies by:

• Reducing managerial and transaction costs, centralising accounting procedures, financial control and records management, and removing other duplicate administrative functions.

• Lowering borrowing and debt-servicing costs due to the increased size of the company.
 
• Creating a single system to manage rail, energy and transport infrastructure, inventory and material and technical resources, service shops and maintenance services.  

• Consolidating the provision and distribution of large amounts of energy among subsidiaries.

• Reducing energy supply costs: excess energy generated at Ammophos through recaptured steam from sulphuric acid production that is currently sold to the regional grid will replace the electricity purchased at higher cost on the wholesale market by Cherepovetsky Azot (given sales allowances, transport costs and the production cost of the electricity).