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September 13, 2016

Volume 7 Issue 4

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Showa Shell's Tie-up with Idemitsu in Knots

A merger of two of Japan’s largest oil refiners, Idemitsu Kosan Co. and Showa Shell Sekiyu K.K., which was inked last year and scheduled to close this month, has been delayed again, due in part to Idemitsu board members’ resistance.

In a Sept. 7 statement, Idemitsu Kosan announced that its purchase of 33.3 percent of rival Showa Shell from parent Royal Dutch Shell plc will be delayed from this month until later this fall. Management expects to integrate the companies by April 1 as planned, but noted that it was still trying to negotiate with shareholders that have been blocking the deal.

Opponents include descendant of the purchasing company’s founder and a current chairperson emeritus of the company, Shosuke Idemitsu, and at least one other shareholding member of the Idemitsu family. The former had been questioning the government-backed acquisition since it was inked in December, and formally opposed it during a June shareholders meeting.

Idemitsu Kosan highlighted several reasons for the shareholder’s opposition in an Aug. 15 statement. Among other concerns, the 89-year old Idemitsu has expressed apprehension that the corporate cultures of the two companies would clash; that the Idemitsu name could eventually disappear from the integrated entity’s title; that the merger would call for a downsizing; that Idemitsu Kosan’s ties with Iran would intensify geopolitical tensions between that country and Saudi Arabia, which owns a stake in Showa Shell; and that the integration would dilute share value.

Last month, he purchased an additional 400,000 Showa Shell shares to bolster his bid to derail the merger.

Analysts have cited Idemitsu Kosan and Showa Shell as holding 30 percent and 10 percent, respectively, of Japan’s finished lubricants market. Each operates a base oil refinery in Japan.