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October 18, 2016

Volume 7 Issue 8

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Idemitsu, Showa Merger Delayed Indefinitely

Idemitsu Kosan Co. indefinitely postponed its merger with fellow Japanese oil refiner Showa Shell Sekiyu K.K. to allow more time to discuss plans with its stakeholders, according to a statement released last week.

Formerly set for April 1, 2017, a new schedule for integration of the two companies will be announced “when appropriate,” after there’s been “enough time for both companies to discuss with their respective stakeholders,” according to a press release issued by both firms.

Photo: Kyodo/Newscom

Eldest son of Idemitsu founder, the 89-year old Shosuke Idemitsu, who is also the firm’s honorary chairman and a stakeholder, opposed the merger with Showa Shell Sekiyu in June.

“We believe that the commencement of the merger should be supported by stakeholders of both companies as much as possible,” the joint statement read. “However, it is our strong regret that the basis for constructive discussions for the merger is not currently in place due to difficulties in consultations with some stakeholders.” Although not mentioned in the statement, a key Idemitsu stakeholder, 89-year-old Honorary Chairman and former company president Shosuke Idemitsu, who is also the eldest son of the firm’s founder, has opposed the merger.

One option for Idemitsu is to bid to buy out Showa Shell, an analyst from industry consultancy Kline & Co. told Lube Report Asia. However, it's unlikely it would be successful, he noted, considering Showa Shell wants to merge with Idemitsu rather than become its subsidiary.

"The Idemitsu family is strongly against the merger. They are concerned about losing tradition," Adachi added. "So far no compromise is seen on the horizon from outside."

The companies had planned to hold a shareholders meeting to approve the deal – which entails Idemitsu purchasing a 33 percent stake of Showa Shell – by the end of this year. Idemitsu Kosan requires approval of two thirds or more of its shareholders for the merger to go ahead. Japanese newspaper Nikkei reported that Showa Shell’s board does not want to proceed with the takeover unless it’s approved by all Idemitsu stakeholders.

The two integrated oil firms are among the five largest in Japan along with JX Nippon Oil & Energy and TonenGeneral (who will merge in April) and Cosmo Oil. Their lubricants and base oil divisions are also considered two of the country’s largest.

"Idemitsu management definitely needs the Showa Shell merger to compete with the JX-Tonen merger," Adachi concluded. He said there's no clear indication of how how long it will take for those involved to reach a compromise.