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December 20, 2016

Volume 7 Issue 4

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Idemitsu Buys 31 Percent of Showa Shell

Idemitsu Kosan Co. completed the purchase of a portion of fellow Japanese refiner Showa Shell Sekiyu K.K. yesterday upon antitrust clearance. The ¥159 billion (approximately U.S. $1.4 billion) acquisition of shares grants Idemitsu 31.3 percent ownership of SSSKK, which is just shy of its original one-third target.

Idemitsu had entered into an agreement to purchase 33.3 percent of the Royal Dutch Shell subsidiary in July 2015 as part of a government-backed scheme in which the two companies would consolidate to reduce the country’s fuel glut. However, last summer, board member Shosuke Idemitsu, a descendant of the firm’s founder, officially opposed the companies’ tie-up. As a result, the companies’ boards had delayed the merger to April 1, 2017, then delayed it again indefinitely.

Japan’s Fair Trade Commission finished its review of the proposed acquisition Monday, noting that it would “not issue a cease and desist order provided that remedial measures proposed by Idemitsu and Showa Shell are taken.”

In a statement on Monday, Idemitsu did not provide a reason for purchasing fewer shares than original planned, apart from noting that, “Taking into account the spirit of the tender offer regulations to the fullest extent, we have [amended] the number of shares to be purchased [to 31.3 percent].”

Other major SSSKK shareholders include Aramco Overseas Co. – which owns 15 percent – and a long list of stockholders with smaller shares.

Neither firm provided a new target date on Monday, but Shell expressed support of ongoing cooperation. “I wish the company success and look forward to seeing the commercial linkages and a new relationship between our two companies over the coming years,” said Shell Downstream Director John Abbott in a statement on Monday.

Both Idemitsu Kosan and SSSKK have lubes businesses and each operates a base oil plant in Japan. Idemitsu Kosan’s, in Chiba, has capacity to make 180,000 metric tons per year of API Group II and III stocks. Showa Shell has a 290,000 t/y Group I and III plant at its refinery in Yokkaichi.

Analysts have cited Idemitsu Kosan and Showa Shell as holding a combined 40 percent of Japan’s finished lubricants market. Japan’s other two top refiners, JX Nippon Oil & Energy and TonenGeneral Sekiyu K.K., also plan to merge. Once both sets of companies merge, the two entities combined will control nearly 90 percent of Japan’s lubricant market.