Royal Dutch Shell has agreed to sell a 33.24 percent stake in Japanese refiner Showa Shell Sekiyu to Idemitsu Kosan for about ¥169 billion, the global oil conglomerate said Thursday.
The deal for 125.3 million shares in Showa Shell Sekiyu KK is almost 23 percent more than the closing price Wednesday, according to data compiled by Bloomberg. The deal is scheduled to be completed in 2016. The Dutch firm will retain a 1.8 percent holding in Showa Shell.
“The sale is consistent with Shell’s strategy to concentrate its downstream footprint on a smaller number of assets and markets where it can be most competitive,” John Abbott, Shell’s downstream director, said in a statement. “Idemitsu is an established and successful company and is well positioned to take up Shell’s shareholding.”
During Thursday trading in Tokyo, Showa Shell Sekiyu shares soared nearly 13 percent at one point in the afternoon, ending up ¥68, or 6.2 percent higher, at ¥1,170 after the share sale was first reported in the Nikkei financial newspaper. Idemitsu lost 4 percent to ¥2,239.
Royal Dutch Shell also announced Thursday in London that it plans to cut 6,500 jobs this year and reduce capital investment by $7 billion as it prepares for a “prolonged downturn.”
The Anglo-Dutch company also said it was planning more asset disposals as it pushes ahead with its proposed $70 billion acquisition of BG Group, bringing total asset sales between 2014 and 2018 to $50 billion.
“We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery,” Chief Executive Officer Ben van Beurden said.
Shell said it anticipated 6,500 staff and direct contractor reductions in 2015 from a total of nearly 100,000 employees. And the group said it would reduce 2015 capital investment for the second time this year to $30 billion, down by 20 percent from a year ago as it expects the downturn in oil prices to last for several years.
Meanwhile, Japanese refiners are under mounting pressure from the Ministry of Economy, Trade and Industry to merge and cut capacity as demand for oil products in Japan shrinks amid its declining population.
“Shell appears to be reducing their global oil footprint and focusing more on gas,” Tom O’Sullivan, founder of Tokyo-based energy consultant Mathyos, said. “The Japanese oil market is contracting by about 2 percent a year or so and METI appear to be orchestrating an orderly reduction in Japan’s overall refining capacity.”
Showa Shell and Idemitsu agreed to advance discussions toward a merger, though the details haven’t been finalized, Showa Shell President Tsuyoshi Kameoka and Idemitsu President Takashi Tsukioka said at a briefing in Tokyo.
Idemitsu will control about a third of the domestic gasoline market under the deal, putting it on par with the country’s largest refiner, JX Holdings, according to the Fair Trade Commission.
Idemitsu plans to raise about ¥169 billion in debt to fund the purchase from Shell, Susumu Nibuya, a director at Idemitsu, said at the briefing.
Idemitsu has three refineries with total capacity of 535,000 barrels a day, the third-biggest Japan processor after JX and TonenGeneral Sekiyu, according to data compiled by Bloomberg. Showa Shell owns three refineries with combined capacity of 445,000 barrels a day, according to the data.
The total number of gas stations under Idemitsu and Showa Shell now stands at some 7,000 nationwide. The stations will continue to sell gas under the two separate brands for some time, the Nikkei said.
“It’s getting closer to the end game,” Hidetoshi Shioda, a Tokyo-based analyst at SMBC Nikko Securities Inc., said by phone.
After the latest deal, the Japanese refining industry may not need further mergers and can focus on growth areas, Shioda said.
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