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UPDATE 1-Potash Corp in merger talks with Israel Chemicals

JERUSALEM, Oct 31 (Reuters) - Potash Corp, the world's largest fertiliser maker, is in talks with Israel's government about merging with its smaller rival Israel Chemicals (ICL), ICL's parent company said.

Canada-based Potash already controls 13.84 percent of ICL, the world's sixth-largest fertiliser maker, and has long sought to raise its stake but has faced government and regulatory opposition. Conglomerate Israel Corp owns 52.3 percent of ICL.

Some 34 percent of ICL, which has a market value of about $15 billion, is traded on the Tel Aviv Stock Exchange.

The Calcalist financial daily reported that Potash chief executive Bill Doyle has met Israeli Prime Minister Benjamin Netanyahu to push for a merger of ICL into Potash. The newspaper said Netanyahu instructed his staff and the Finance Ministry to examine all aspects of the deal.

``The company confirms it is aware that Canada's Potash is in talks with various government agencies that included a meeting with the prime minister regarding examining the possibility of merging ICL with Potash,'' Israel Corp said in a statement to the Tel Aviv Stock Exchange on Wednesday.

As part of the deal, ICL's shareholders would receive stock in Potash, Calcalist said.

Shares of ICL, which were briefly suspended, were up 4.9 percent, while Israel Corp's shares were 5.9 percent higher.

Since ICL has potash mining rights in the Dead Sea and phosphate mining rights in Israel's south, both of which are state-owned resources, its acquisition is a complicated affair.

As a foreign buyer, Potash would need authorisation from the Government Companies Authority, the Prime Minister and the Antitrust Authority.