Idemitsu, Showa Shell Expected to Merge

June 28, 2018

Tokyo- Idemitsu Kosan Co.; and Showa Shell Sekiyu K.K.; are expected to merge next spring, as Idemitsu's top shareholder and a key member of its founding family have dropped their opposition to the deal, informed sources said Wednesday.

The largest shareholder, Nissho Kosan K.K, which manages the assets of Idemitsu's founding family, and the first son of Shosuke Idemitsu, honorary chairman of Idemitsu, came out in support of the merger, the sources said.

Nissho Kosan had a stake of some 13 pct in Idemitsu at the end of March. The first son of Shosuke Idemitsu held about one pct as of the end of last year.

The major Japanese oil companies reached a basic agreement to merge in 2015. But they have been unable to move ahead with the merger due to objections by Idemitsu's founding family and related companies, which together hold a stake of about 28 pct in the company.

The merged company is expected to control over 30 pct of Japan's retail gasoline market, second only to the 50 pct held by JXTG Holdings Inc..

Idemitsu issued a statement Wednesday saying that the company has resumed discussions with its major shareholders on the merger. The company is scheduled to hold a shareholder meeting on Thursday.

Idemitsu won support for the merger from Nissho Kosan and the first son of Shosuke Idemitsu by presenting plans including giving him a seat on the board of the merged company, the sources said.

Shosuke Idemitsu himself and his second son, who each held a stake of about one pct at the end of last year, remain opposed to the deal.

Idemitsu and Showa Shell are considering a stock swap merger.

The merger is designed to make operations more efficient and accelerate an overseas expansion push amid falling gasoline demand in Japan on the back of wider use of fuel-efficient vehicles as well as the shrinking population.

The merged company's management team is expected to include Idemitsu Chief Executive Officer Shunichi Kito and his Showa Shell counterpart, Tsuyoshi Kameoka. Jiji Press