Idemitsu, Showa Shell Sign Deal for Management Integration

July 10, 2018

Tokyo, July 10 (Jiji Press)--Major Japanese oil refiners Idemitsu Kosan Co. and Showa Shell Sekiyu K.K. said Tuesday that they have signed an agreement to integrate their management through a stock swap in April 2019.

The integration is aimed at strengthening management at a time of falling oil demand in Japan, reflecting the country's aging population and other factors.

The agreement came three years after the two companies launched merger talks. Although they announced in June 2016 that they would merge in April 2017, Idemitsu's founding family opposed the merger, putting the deal in limbo.

But Idemitsu has eventually obtained the consent of major shareholders from the founding family, with support from activist investor Yoshiaki Murakami. Both companies now plan to convene an extraordinary meeting of shareholders to get the integration agreement approved by December.

"We've got ready to make a 'rocket start' without fail, following the integration," Idemitsu Chairman Takashi Tsukioka told a press conference on Tuesday.

"We faced various challenges, but we'll now become a leading company in Asia," Showa Shell President Tsuyoshi Kameoka said.

Under the agreement, Idemitsu will make Showa Shell a fully owned subsidiary through a stock swap. The stock exchange ratio is yet to be determined. Showa Shell will be delisted from the Tokyo Stock Exchange's first section on March 29, 2019.

The integrated company will use the trade name "Idemitsu Showa Shell" in Japanese. It will appoint five directors from Idemitsu, including two endorsed by its founding family, and three from Showa Shell.

Idemitsu shareholders linked to the founding family own a total of 28 pct of the company's shares. Of them, Nissho Kosan K.K., an asset management firm for the family, and Masakazu Idemitsu, the eldest son of Idemitsu Honorary Chairman Shosuke Idemitsu, have agreed to the integration plan, on conditions including that Masakazu Idemitsu be appointed a director of the new company.

With the major shareholders jointly holding a stake of some 14 pct in Idemitsu, the integration plan is now believed to win support from a two-thirds majority at an extraordinary shareholders' meeting, as required to be approved.

The Idemitsu management and the two shareholders have agreed that the new company will aim to achieve a net profit of 500 billion yen or more over the three years after the integration and pass on at least 50 pct of the profit to shareholders through dividends and own share buybacks.

In a statement issued through its agent on Tuesday, the founding family said it has been confirmed that the Idemitsu founder's ideals will be maintained after the management integration with Showa Shell, but noted that not all shareholders on the family side have accepted the integration. Jiji Press