UPDATE 2-Yamana adds cash to sweeten hostile Meridian bid

(Adds Meridian response, analyst comments, stock prices)

By Susan Taylor

OTTAWA, Sept 20 (Reuters) - Yamana Gold (YRI.TO) sweetened its hostile takeover offer for Meridian Gold MNG.TO on Thursday, hiking the cash consideration by 62.5 percent, cutting the minimum tender and again extending the deadline.

Acquisition-hungry Yamana has increased the cash component of its offer by C$2.50 a share to a total of C$6.50 a share, leaving the share component of the offer unchanged at 2.235 Yamana common shares for each Meridian share.

That puts the deal value at about C$3.6 billion based on Yamana's share price, which pushed up 33 Canadian cents to C$12.98 in Toronto.

"The baby steps, of slowly increasing the bid, are over. This is a big jump and they're nearly doubling the original cash offer," Wellington West analyst Catherine Gignac said in an interview.

"Meridian's board would be mad if they did not come back and say this confirms what we've been telling our shareholders, that we think our stock is of high quality, high value."

Yamana also reduced the minimum tender condition for its Meridian bid to 50.1 percent from two-thirds of shares outstanding and extended the offer deadline to 8 p.m. (2400 GMT) Oct. 2 from 8 p.m. Sept. 24.

"Yamana's sweetened bit for Meridian should be enough to win the day," Blackmond Capital analyst Richard Gray said in a note.

The Meridian deal is one part of a three-way tie-up Yamana is pursuing to create a mining company with gold production of 1 million ounces this year.

Terms of Yamana's friendly C$1 billion takeover of Northern Orion Resources NNO.TO, the other leg of the deal, remain unchanged.

"It does make a lot of sense and what it does is it gives another choice for North American gold investors," Gignac said of the combination of companies. "The timing is good."

Meridian has advised shareholders to defer a decision until its board has reviewed the bid and issued a recommendation.

Meridian, whose crown jewel is the El Penon gold and silver mine in northern Chile, has been fighting hard against what it calls an inadequate offer, placing prominent newspaper advertisements urging shareholders to reject the Yamana bid.

Earlier this month it said two companies were poised to make rival offers, but the white knights failed to materialize.

Last week, Yamana extended its bid by two weeks but left the terms unchanged, prompting many analysts to say it had to sweeten its offer to be successful.

Yamana said at the time that about 34.3 million shares had been deposited to its bid, about 34 percent of Meridian's outstanding common shares.

Shares in Yamana jumped 2.6 percent to C$12.98 on the Toronto Stock Exchange, while Meridian stock jumped 7.6 percent to C$35.24 and Northern Orion climbed 12 percent to C$6.73.

($1=$1 Canadian)