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Idemitsu Kosan resumes talks with founding family on Showa Shell merger

Kyodo

Idemitsu Kosan Co.,the nation’s second-largest oil wholesaler, said it has resumed talks with its founding family over merging with fourth-ranked Showa Shell Sekiyu K.K. The family’s opposition has so far stymied a deal.

Japan’s oil wholesale sector would be controlled by two dominant companies — industry leader JXTG Holdings Inc. and the newly merged firm — if the founding family were to bless the union.

The two oil companies aim to finalize the merger in spring 2019, sources close to the matter said.

“We are in discussion with Showa Shell Sekiyu K.K. regarding a business integration to enhance the corporate value of both companies, and we have resumed the discussions with our major shareholders,” Idemitsu said in a statement on Wednesday.

An Idemitsu executive told shareholders at an annual meeting Thursday that it will try to achieve a merger with fourth-ranked Showa Shell Sekiyu K.K. “as soon as possible,” according to a participant.

“We resumed talks with our major shareholders in a constructive sense,” the executive said, adding that nothing has been decided, according to the participant.

The plan to merge Idemitsu and Showa Shell on an equal footing was announced in 2015. But Idemitsu’s founding family, which at the time controlled a 34 percent stake in the company — enough to veto the merger — opposed the plan at a general shareholder meeting in 2016, citing different corporate cultures between the two companies.

The family, headed by Shosuke Idemitsu, son of founder Sazo Idemitsu, argued that the company’s philosophy of treating its employees as part of a family is incompatible with Showa Shell’s corporate culture.

To realize the merger despite the family’s opposition, Idemitsu issued new shares through a public offering in 2017, lowering the founding family’s stake to around 26 percent and making it possible for the rest of the company’s shareholders to approve the merger. The founding family then bought back shares to raise its stake to 28 percent, further deepening the feud between the two sides.

The founding family had previously rejected talks with Idemitsu over the merger, but has apparently now signaled it will approve the merger on condition that Idemitsu agrees to its proposals, including ensuring family members are appointed to the board of the merged company, the sources said.

But another source familiar with the matter said that members of the founding family are split over how to proceed. It also remains uncertain whether Showa Shell will accept proposals made by the founding family, the source said.

Yohei Tsuruma, a lawyer representing the Idemitsu family, said Wednesday he has resigned and another lawyer has succeeded him.

“I already have absolutely no involvement,” said Tsuruma, who began representing the family last year. He also said that the founding family will not agree to the merger regardless of the conditions.

The merged company would be Japan’s second-largest oil distributor, with combined group sales of over ¥5.7 trillion ($51.9 billion), following JXTG Holdings, which was formed in 2017 through a merger of JX Holdings Inc. and TonenGeneral Sekiyu K.K.

Japanese oil refiners face a shrinking domestic market for petroleum products due partly to carmakers developing vehicles that consume less or no gasoline.

Once the talks on the integration are finalized, Idemitsu and Showa Shell aim to gain approval to merge at extraordinary shareholder meetings, probably by the end of this year, the sources said.