The companies will merge through a stock swap, and the share swap ratio for the 68.75 percent of Showa Shell shares that Idemitsu does not own will be agreed on in October. This will be followed by an extraordinary shareholders meetings in December to seek approval.

After the merger, the new companies will be known as Idemitsu Kosan Co.; however, it will conduct business under the trade name Idemitsu Showa Shell.

For a certain period after the business integration is implemented, the existing brand of the companies will be used, said Idemitsu in its press release on Tuesday.

The domestic oil industry faces structural challenges such as a medium- to long-term decline in the demand for oil products, and overcapacity, which materially influences current and future management, it added.

Talks of the acquisition date back to January 2015, when reports that Idemitsu was in the final stages of purchasing Showa Shell surfaced. The oil major denied these claims, but confirmed the two companies were discussing potential cooperation. Idemitsu later purchased a 33.2 percent stake in Showa Shell.

Despite announcing indefinite delays to merger plans due to a perceived need for Showa Shell to discuss plans with its stakeholders, the two companies formed an alliance in May of last year, and began integrating some parts of the businesses, including the procurement of raw materials.