Concerns grow over Idemitsu family’s attempt to block Showa Shell acquisition
(Reuters) A move by Idemitsu Kosan Co., Ltd.'s founding family to block management's plan to acquire smaller rival Showa Shell Sekiyu KK caused shares in the Japanese refiners to decline Thursday as concerns grew that the family might succeed.
Idemitsu has said its planned takeover of Showa Shell, which would create Japan's second largest refiner by capacity, is necessary to cope with lower demand, but the family argues the two companies are too culturally different for a merger to work.
A collapse of the deal - one of two planned combinations in the sector - would undercut the government's efforts to slim down the industry amid declining demand. The Idemitsu family's move prompted the trade minister to weigh in on the matter, stressing that the sector needed to consolidate.
The founding family said on Wednesday it had bought a 0.1% stake in Showa Shell, sufficient to complicate any takeover as it raises the prospect that Idemitsu would, contrary to current plans, have to make an expensive tender offer for Showa Shell shares.
Analysts and fund managers said prospects for the deal were now very uncertain, although some still think Idemitsu may eventually launch an offer.
"Everybody, corporate and government, wants this merger to happen. And now you get this family making the whole thing very difficult," said Thanh Ha Pham, equity analyst at Jefferies.
Idemitsu agreed in July 2015 to the private purchase of Royal Dutch Shell PLC's 33.2% stake in Showa Shell. They then agreed in November to work towards a full merger, now slated for April 2017.
With the founding family's purchase, Showa Shell holdings owned by Idemitsu and related parties would exceed a third and by law, Idemitsu would have to launch a takeover bid on the open market that would likely attract interest from other Showa Shell shareholders eager to sell at that high price.
An Idemitsu spokesman said at this point the company had no plan to launch a takeover bid on the open market.
The Idemitsu family has argued the company's close connection to Iran made a merger with Showa Shell, which has close ties to Saudi Arabia, difficult. But Idemitsu management has played down those fears, countering that the company these days imports only 1% of its crude oil from Iran.
Analysts say the family, which owns just over a third of Idemitsu, is likely more concerned that its stake in the company would be diluted.
Energy demand has been declining rapidly in Japan due to a shrinking, ageing population and development of more fuel-efficient cars. Rivals JX Holdings, Japan's top oil refiner, and third-ranked TonenGeneral Sekiyu have also agreed to merge by April.
Reporting by Makiko Yamazaki and Chang-Ran Kim; Additional reporting by Thomas Wilson, Ami Miyazaki and Hideyuki Sano; Editing by Edwina Gibbs
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