Idemitsu, Showa Shell Form Alliance

Idemitsu Kosan Co. and Showa Shell Sekiyu K.K. last week said they still plan to merge by an unspecified date and will immediately begin integrating some parts of their business, including the procurement of raw materials.

The Japanese oil giants on May 9 signed an official alliance to gradually start to extensively deepen [the firms] business collaboration while restarting or accelerating the processes for the integration, announced statements from both firms.

The Brighter Energy Alliance will aim to reduce more than 25 billion (U.S. $219 million) in costs by April 2020. The agreement includes combining crude oil purchases and transportation routes, cooperating in the scheduled shutdowns of oil refineries and more. It also establishes a plan to optimize production of the companies seven refineries in Japan, starting with a test run in October.

The two will jointly procure additives for oil products such as fuels. However, marketing of products will remain unchanged. With respect to sales of products, we will not immediately change any systems of each company and will continue to operate on each companys basis in principle for the time being, the firms said. An alliance representative told Lube Report Asia that terms in the statement did not refer to the firms lubricants businesses.

A member of the founding family of Idemitsu blocked the merger last year based on concerns of potential clashes in corporate culture. The firms now say that those concerns are being addressed.For example, workshops have been set up to harmonize the personnel of the companies by exploring culture, codes of conduct and working style, said the releases. So far, 800 employees have participated in the workshops and the number is expected to nearly double by the end of this fiscal year.

Idemitsu director Nibuya Susumu said results showing the companies can cooperate would help quell the founding familys opposition, according to local newspaper Mainichi Shimbun.

The merger scheduled for April this year was indefinitely postponed last October. In December, Idemitsu acquired 31.3 percent of Showa Shell shares.

Idemitsu Kosans base oil plant in Chiba has capacity of 305,000 metric tons per year. According to the companys latest financial results, total sales of lubricants increased 5.8 percent to 750,000 tons in its third quarter compared to the prior year. Showa Shell has a 290,000 t/y base oil plant in Yokkaichi.