Nippon Oil Co., Japan's second-largest petroleum distributor, and Mitsubishi Oil Co., its sixth-largest, have reached a basic agreement to merge into what will be the nation's largest petroleum company on April 1.The move, announced Wednesday by the companies' presidents, is intended to fend off intensifying competition and came the same day that Nippon Oil reported operating losses of 1.5 billion yen for the April-September period.Its sales shrank 7.6 percent to 844.1 billion yen, compared with the corresponding period of the previous year, the company said. Mitsubishi Oil, meanwhile, has suffered pretax losses since the end of fiscal 1996, and the company projects 9 billion yen in losses for fiscal 1998.It is estimated that annual sales of the new company, tentatively called Nisseki-Mitsubishi, will hit 2.91 trillion yen; the nation's current No. 1 oil company, Idemitsu Kosan Co., logged sales of 2 trillion yen in fiscal 1997.Nippon Oil and Mitsubishi Oil also expect the new company to post pretax profits of 20 billion yen and net profits of 16 billion yen in fiscal 2000.Nippon Oil will be the surviving company, and the share swap ratio will be 1 to 0.525 in that firm's favor, the presidents said. "The (domestic) industry of today is facing severe environmental changes, such as intensifying competition with developing deregulation, and dwindling domestic demand due to the recession," Nippon Oil President Hidejiro Osawa said at a joint news conference in Tokyo. "The two companies have decided to merge, believing the best way is to combine their resources and accelerate further streamlining."Some personnel cuts will be inevitable as part of streamlining efforts, Mitsubishi Oil President Yoshihiko Izumitani said. "I think it's a matter of course," he said.Osawa will be president of the new company, and Izumitani will be chairman. The two companies exchanged a memorandum on the agreement during separate board of directors meetings Wednesday, Osawa said.Since the liberalization of oil product imports in 1996, the domestic oil industry has suffered from plummeting gasoline prices and cut-throat competition. According to industry sources, refineries in Japan can produce 5 million barrels of oil products a day, which exceeds domestic demand by 10 percent to 20 percent.Osawa said the two companies will "complement each other" because there is little overlap between their refineries.
