Idemitsu-Showa Shell merger now in limbo

19 October 2016, Week 41 Issue 547

Japanese refiner Idemitsu Kosan’s planned merger with smaller domestic peer Showa Shell Sekiyu is now in doubt, owing to the continued objections from Idemitsu’s founding family.

The two companies announced on October 13 that they would delay the merger, which had previously been scheduled for April 1, 2017, until an undetermined date, although they would continue their talks toward the corporate marriage.

Idemitsu, Japan’s second biggest oil refiner, agreed on July 30, 2015 to acquire a 33.3% stake in fifth placed Showa Shell on a voting rights basis from Royal Dutch Shell for 169.1 billion yen (US$1.63 billion).

After the deal with Shell, Idemitsu and Showa Shell accelerated their merger talks. The two Japanese companies signed a basic agreement on November 12, 2015 to merge “on an equal footing” as early as October 2016.

But Idemitsu said in mid-June that the planned merger would be delayed for up to six months until April 1, 2017, citing a delay in securing antitrust approval for its acquisition of the 33.3% Showa Shell stake. The share transaction between Idemitsu and Shell is still scheduled to be completed by the end of November, making Idemitsu Showa Shell’s top shareholder.

The feud between Idemitsu’s management team and founding family, led by Shosuke Idemitsu, the company’s 89-year-old honorary chairman and eldest son of founder Sazo Idemitsu, emerged at the company’s annual shareholder meeting on June 28.

At the meeting, the family, which claims to control a 33.9% stake in Idemitsu on a voting rights basis, voiced its opposition to the merger. The family cited, among other reasons, significant differences in the corporate cultures of Idemitsu and Showa Shell. But the family is widely believed to be concerned about a decline in its influence on the back of the two firms’ merger.

Idemitsu had initially wanted to seek approval for the merger plan at an extraordinary shareholder meeting by the end of this year. But the refiner now intends to postpone such a meeting owing to the difficulty in securing a two-thirds vote required to implement the merger.

Meanwhile, downstream leader and Japan’s biggest oil refiner JX Holdings and third-ranked TonenGeneral Sekiyu announced on August 31 that they had signed a final agreement to integrate their operations on April 1, 2017.

The fresh round of industry consolidation in Japan comes amid declining demand for gasoline and other oil products, excess refining capacity and cutthroat competition.

Edited by

Andrew Kemp

Editor

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