Oct. 30 (Bloomberg) -- Nippon Oil Corp. and Nippon Mining Holdings Inc. signed an agreement to merge in April 2010, cutting costs and creating a company with more than 1 trillion yen ($11 billion) market value.

Shareholders of Nippon Oil, the country’s biggest refiner, will receive 1.07 shares in a holding company, JX Holdings Inc, for each of their shares, and Nippon Mining holders will get one share for each of theirs, according to a joint statement released in Tokyo today. Shareholders are due to meet in January.

Both companies cut their full-year forecasts today as climbing crude prices and sluggish local sales cut profitability. The merger is meant to cut costs of 100 billion yen ($1.01 billion) annually as a slump in fuel demand forces refiners to reduce output and shut plants.

“I’m a little disappointed that the companies didn’t provide a clear and detailed roadmap showing how they can fight the main problem -- overcapacity in Japan,” Hidetoshi Shioda,, a senior analyst at Mizuho Securities Co., said by phone today. “They seem to lack a sense of urgency.”

Nippon Oil advanced 1.8 percent to close at 453 yen in Tokyo trading, while Nippon Mining’s shares jumped 5.3 percent to 415 yen, the biggest rise since July 14. Nippon Oil has surged 37 percent since the merger announcement in December and Nippon Mining climbed 46 percent. That compares with a 24 percent rise in the Topix Oil & Coal Index.

Nippon Oil today cut its full-year profit forecast by 11 percent and Nippon Mining, Japan’s biggest copper miner as well as a refiner, cut its projection by 33 percent. Both cited narrower refining margins and declining fuel sales.

Reducing Capacity

The two companies will cut 200,000 barrels a day of crude refining capacity by March 2015, they said in the statement. That’s in addition to the 400,000 barrels-a-day cut, or 24 percent of their combined capacity, they announced in December.

Japan’s refining capacity may exceed demand by about 2 million barrels a day, or about half the current level, by 2020, Petroleum Association of Japan Chairman Akihiko Tembo said on Oct. 15.

“Consumption has dropped much faster than we expected and this is the problem we need to address first,” said Nippon Mining President Mitsunori Takahagi, who will become president of JX Holdings. “We’ve got to improve our profit immediately.”

Cutting Costs

The merged company will reduce costs by 60 billion yen annually by March 2013 and 100 billion yen by March 2015, according to the statement. The companies aim to derive 40 percent of their profit from businesses other than oil refining and explorations by 2015, Takahagi said.

The merger will help the companies shift resources from the refining business to growth areas such as fuel cells and solar panels, Nippon Oil Chairman Fumiaki Watari said in an interview in July. Fuel cells extract hydrogen from liquid petroleum gas to heat water and generate electricity at homes, producing less pollution.

“We decided to merge, not to shrink, but to transform ourselves into an energy company” that can offer a variety of energy products, Watari said in July. “We can’t survive just by selling refined products any longer.”

To contact the reporters on this story: Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net.

Last Updated: October 30, 2009 04:08 EDT