* Merger could transform Clariant into SMI candidate
* Foes of tie-up fighting to block deal
* SMI membership would boost firm's appeal for funds
ZURICH, Sept 15 (Reuters) - Specialty chemicals maker Clariant's proposed merger with U.S.-based Huntsman may catapult the combined company into Switzerland's blue-chip Swiss Market Index, lifting its appeal for funds focusing on the largest Swiss companies.
The $20 billion tie-up plan must first survive a challenge from activist U.S.-based funds Corvex and 40 North, whose vehicle White Tale has taken a roughly 10 percent stake in Clariant in its bid to convince shareholders to reject the deal.
A vote is expected by January, with two-thirds Clariant shareholder support needed for the deal to go through.
If the transaction succeeds, HuntsmanClariant - with a market capitalisation of about $15 billion - could not only challenge others including hearing aid maker Sonova and money manager Partners Group that are on the cusp of SMI membership, but potentially eject an existing member.
Lonza and Sika joined SMI this year. Insurer Swiss Life, worth just over $11 billion, now has the lowest weighting and market capitalisation on the index.
"Joining Switzerland's leading index would make Clariant much more relevant for Swiss funds," said Kepler Cheuvreux analyst Christian Faitz, adding HuntsmanClariant would also see its profile raised among investors who follow international indicators like the Stoxx Europe 600 Chemicals Index.
The SMI includes 20 of the largest, most-liquid publicly traded Swiss companies. Its members include food giant Nestle , cement maker LafargeHolcim and drug maker Novartis and the 20 firms make up nine-tenths of the Swiss stock market's free-float capitalisation.
The SMI's combined market value exceeds $1 trillion.
Several factors determine SMI eligibility, according to the SIX Swiss Exchange, in a calculation that takes into account free float, market capitalisation and trading volume.
For example, the regulator deducts the value of investor stakes of more than 5 percent from its market capitalisation calculation.
Based on current ownership tracked by Reuters, two shareholders after the Clariant-Huntsman merger, White Tale and a group of Bavarian families, would likely exceed 5 percent.
"Given the company's dimensions following the merger, inclusion in the SMI is clearly something that is a possibility," Zuercher Kantonalbank analyst Philipp Gamper said.
The SMI's composition is reviewed annually in September, but extraordinary changes are possible.
In May, drug ingredients maker Lonza replaced Actelion after the Swiss biotech was bought by Johnson & Johnson for $30 billion, while adhesives maker Sika supplanted chemicals-and-seeds giant Syngenta after its $43 billion acquisition by ChemChina.
Investors fighting the merger, Corvex's Keith Meister and 40 North's David Winter and David Millstone, say Clariant's specialty chemicals businesses are a poor fit with what they call Huntsman's commodity operation.
They have not publicly offered a specific alternative. Without such a proposal, analysts say prospects of the transaction succeeding are favourable.
"Right now, the only thing that could really change this merger story is for White Tale to find a group of investors, somebody to buy Clariant completely," Baader Helvea analyst Markus Mayer said. (Reporting by John Miller; Editing by Edmund Blair)