Japanese petroleum major Idemitsu Kosan will purchase Royal Dutch Shells 33.2 percent stake in Showa Shell Sekiyu KK with the aim of merging with SSSKK, the company said in a statement.
Idemitsu will pay 169 billion (U.S. $1.4 billion) for 125.3 million shares in the Japanese refiner, Royal Dutch Shell said in a news release Thursday.
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After the share purchase, Idemitsu Kosan will be the largest shareholder of SSSKK, while Royal Dutch Shell will retain a 1.8 percent holding in the company.
The share transfer is expected to take place in the first half of 2016, after the completion of the Japan Fair Trade Commissions merger review, potential merger reviews in a small number of other jurisdictions and other conditions, Idemitsu Kosan said.
Idemitsu Kosan and Showa Shell Sekiyu KK plan to advance merger discussions with each other through the transaction, the companies said.
Idemitsu Kosan said its oil business in Japan is facing various structural challenges such as the fall-off in demand for petroleum products and a low earnings structure caused by overcapacity and excessive competition.
Forming competitive business groups that have a solid management foundation, that is, industry consolidation, is necessary in order for the oil business to perform its social mission. Given this business environment, we have conducted merger discussions with Showa Shell in the context of considering wide-scale strategic options, Idemitsu Kosan said.
Similarly, SSSKK has explored a range of management options since last year, including alliances with other parties to further increase its competitiveness and growth prospects in response to a rapidly changing business environment, SSSKK said.
Discussions were held with relevant parties, including SSSKKs major shareholders, the company said.
After reviewing the management strategies of SSSKK and Idemitsu, the expected integration synergies, and other factors, including the intention of the company’s major shareholder, SSSKK is pursuing discussions with Idemitsu aimed at a comprehensive management integration, SSSKK said.
Both Idemitsu Kosan and SSSKK have lubes businesses. Shell said it will continue to cooperate with Showa Shell for the sale of lubricants and other downstream activities in Japan. Idemitsu Kosan and Showa Shell each operate a base oil plant in Japan. Idemitsu Kosan’s is located at a refinery in Chiba and has capacity to make 180,000 metric tons per year of API Group II and III stocks. Showa Shell has a 290,000 t/y Group I and III plant at its refinery in Yokkaichi.
Other major shareholders in SSSKK include Aramco Overseas Co. (which holds 15 percent of the companys stock), Nihon Master-Trust Trust Bank K.K. (custody account: 3.3 percent) and Nihon Trusty Service Trust Bank K.K. (custody account: 2.9 percent). The remaining 50 percent is owned by a long list of smaller stockholders.