Uncertainty grows over Idemitsu-Showa Shell merger

06 July 2016, Week 26 Issue 532

Japanese refiner Idemitsu Kosan’s planned merger with smaller domestic peer Showa Shell Sekiyu could be derailed owing to unexpected objections from the founding family.

At Idemitsu’s annual shareholder meeting on June 28, the company’s founding family, which has a 33.9% stake on a voting rights basis, voiced its opposition to the merger plan and the reappointment of CEO Takashi Tsukioka and other board members.

A regulatory filing by Idemitsu on June 30 showed that Tsukioka was reappointed with only 52.3% of the votes as the founding family and some other shareholders voted against him.

Idemitsu intends to seek approval for the merger plan at an extraordinary shareholder meeting to be held later this year. But it is now unclear whether Idemitsu will be able to secure a two-thirds vote required to implement the plan.

The founding 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 owing to the two firms’ merger.

To counter the family’s objections, Idemitsu’s management team, led by Tsukioka, could try to reduce their stake by increasing capital through a third-party allotment scheme.

Idemitsu, Japan’s second biggest oil refiner, agreed in July 2015 to acquire a 33.3% stake in fifth-ranked Showa Shell on a voting rights basis from Royal Dutch Shell for 169.1 billion yen (US$1.65 billion).

The transaction is now scheduled to be completed by the end of September, making Idemitsu Showa Shell’s top shareholder.

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

The merger is now scheduled for April 1, 2017. The merger ratio, the name and location of the combined company and other details have yet to be worked out, the two firms have said.

Japan’s largest oil refiner JX Holdings and third-ranked TonenGeneral Sekiyu also signed a basic agreement in December 2015 to integrate their operations in April 2017.

Edited by

Andrew Kemp

Editor

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