Shares in Japanese refiners surged on Monday after two of the largest said they were discussing a tie-up, as falling demand for fuels spurs the industry to consider consolidation.
Idemitsu Kosan Co., Japan's third-biggest refiner by capacity, and Showa Shell Sekiyu KK, the fifth-ranked firm, are holding talks, the companies said in separate statements Dec. 20. The announcements followed a Nikkei newspaper report that Idemitsu may bid as much as ¥500 billion ($4.2 billion) for Showa Shell, a 30 percent premium to last week's closing value.
Domestic demand for fuels has declined amid a shrinking population and a shift to more energy-efficient cars, prompting Japan's government to encourage consolidation and a reduction in processing capacity. Adding Showa Shell's operations would give Idemitsu control of about 30 percent of the domestic gasoline market. The two companies have almost 15,000 employees.