UPDATE 1-Israel Chemicals makes $109 mln offer for Allana Potash

(Adds share activity, analyst's comment, context)

By Ari Rabinovitch and Rod Nickel

JERUSALEM/WINNIPEG, March 27 (Reuters) - Potash producer Israel Chemicals said on Friday it had made a C$137 million ($109.50 million) offer to buy Canada's Allana Potash, a deal it hopes will accelerate development of a mine in Ethiopia.

Israel Chemicals (ICL) already owns 16.36 percent of shares in Allana, whose Danakhil project in northeast Ethiopia could yield up to 1 million tonnes of muriate of potash per year for 25 years. It will pay 50 Canadian cents per share for the remaining shares.

The offer is a 51.5 percent premium to Allana's closing price on Thursday, prior to the offer being announced.

On Friday, Allana shares jumped 45 percent to 48 Canadian cents in morning trading in Toronto. ICL shares edged slightly higher in New York.

A takeover by ICL, the world's sixth-biggest potash producer, would push the mine closer to construction and give ICL a future low-cost source of the fertilizer. The mine is small compared to those operated by top producers Uralkali and Potash Corp of Saskatchewan, but would add to a global capacity glut.

"Acquiring ownership of Allana will enable ICL to control the development of the Danakhil project, accelerate pre-construction engineering design work, as well as secure project financing," ICL said in a statement.

The acquisition, to be paid for in cash and shares in ICL's common stock, is supported by Allana's board of directors, but is still subject to conditions and regulations, ICL said.

Along with muriate of potash (MOP), the commodity form of the crop nutrient, Allana is studying potential for producing the premium product sulfate of potash (SOP) at the site. Norwegian fertilizer giant Yara International is developing an adjacent SOP project, and Allana Chief Executive Farhad Abasov said this month that he planned to talk with Yara about a partnership

Yara spokesman Bernhard Mauritz Stormyr declined comment on ICL's offer to Allana. Allana said it has granted ICL a right to match any competing offer.

It's unlikely that another bid will emerge, and the offer is likely the best option for Allana given challenging conditions for junior potash companies, Raymond James analyst Steve Hansen said in a note.

The deal must close by Aug. 17.

ICL is the second-largest Israeli company on the Tel Aviv Stock Exchange and one of the three largest suppliers of the crop nutrient potash to China, India and Europe.

($1 = 1.2511 Canadian dollars) (Editing by Pravin Char amd W Simon)