According to The Asahi Shimbun, a new oil industry giant is in the making as refiner Idemitsu Kosan Co. has broken a three-year deadlock in negotiations with the company's founding family over a proposed merger with Showa Shell Sekiyu KK, sources said.
The new entity, as yet unnamed, is expected to be established next spring to compete with industry leader JXTG Holdings Inc.
Idemitsu and Showa Shell, both based in Tokyo, agreed in principle on the merger in 2015. But Idemitsu’s founding family, which has a 28-percent stake in the company, was bitterly opposed to the deal.
The family recently had a change of heart after Idemitsu's management accepted some of its terms.
Once Idemitsu formally proposes the merger to Showa Shell again, the two companies will hold extraordinary shareholders’ meetings before year-end to obtain approval to go ahead.
They plan to merge through a stock swap.
Idemitsu's annual sales on a consolidated basis came to 3.73 trillion yen ($33.9 billion) in fiscal 2017, making it the second-largest in the oil industry, while Showa Shell chalked up 2.05 trillion yen in sales, the fourth-largest. The combined total of 5.78 trillion yen will still be dwarfed by JXTG Holdings, also based in Tokyo, which reported 10.3 trillion yen in sales last fiscal year.
Having fiercely opposed the merger, Idemitsu’s founding family recently returned to the talks with Idemitsu’s management.
Among demands it made was to appoint the eldest son of Idemitsu’s honorary chairman Shosuke Idemitsu as a director of the merged company.
Idemitsu’s management accepted some of the demands, which broke the deadlock and allowed merger negotiations with Showa Shell to resume.
Shosuke Idemitsu, however, is believed to remain opposed to a deal even though other key members of the family now support it, the sources said.
With domestic demand for oil products falling, JX Holdings Inc. and TonenGeneral Sekiyu KK integrated their operations in April 2017 to become JXTG Holdings.
In July 2017, Idemitsu implemented a capital increase through a public offering. As a result, the founding family’s stake declined from about 33 percent to 26 percent.
It also lost veto power as it no longer held a more than one-third of the shares to reject a merger.
Ties between the founding family and Idemitsu’s management deteriorated further.
This caused the management to call a halt to the merger as it sought to heal the rift with the family through dialogue. The family increased its stake to more than 28 percent last December through share purchases, adding to the confrontation.
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