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July 11, 2017

Volume 7 Issue 7

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Idemitsu Shareholders Conflict Continues

Some Idemitsu Kosan shareholders are seeking a court injunction to stop the company from issuing new shares that would help finance its merger with Showa Shell Sekiyu KK.

On July 3, Idemitsu announced that it would issue 48 million new shares “by way of global offering” to help fund both past and future purchases of Showa Shell shares and to invest in expanding some of its segments, such as its lubricant business in Southeast Asia.

The following day, members of the company’s founding family filed a petition in the Tokyo District Court to protest the issuance. According to the group’s statement – which was published on a WordPress website and recounted in an official Idemitsu statement – the purpose of the issuance is to erode the voting rights of members that have opposed the merger.

“The claim is obviously incorrect,” CEO Takashi Tsukioka said in a July 5 statement, noting that the firm will “vigorously defend and endeavor to demonstrate the legality of the issuance.”

Idemitsu requires at least two-thirds of its shareholders to approve the merger. The opposing party – led by the founder’s eldest son, 89-year-old honorary chairman and former company president, Shosuke Idemitsu – has used its 33.92 percent share of Idemitsu to block the deal.

Some observers noted that even if the shares offering is approved, the opposing members may still be able to increase their shareholdings through fund managers, which could prolong the tussle.

In December, Idemitsu acquired 31.3 percent of Showa Shell and in May, the two companies agreed to immediately promote collaboration. The merged entity would share 89 percent of the Japanese lube market with JXTG Holdings – the firm created by the March merger of JX Holdings and TonenGeneral Sekiyu KK.

In its 2016 financial year, Idemitsu’s lubricant sales volume increased 6.2 percent to over 1 million tons. The Tokyo-headquartered company expects its lubricants sales to increase 6.9 percent in 2017.

Idemitsu said it will apply net proceeds from the global offering “in the aggregate amount of approximately up to ¥138.5 billion (U.S. $1.2 billion)” to fund investments in its petrochemical segment and to expand subsidiaries PT Idemitsu Lube Techno Indonesia, Idemitsu Lube India Pvt., and its joint venture with Kuwait Petroleum International Ltd., Idemitsu Q8 Petroleum LLC. It will also repay ¥159 billion in loans borrowed to acquire Showa Shell Sekiyu shares.