business

Shell Sells Japan Refiner Stake for $1.4 Billion to Idemitsu

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Royal Dutch Shell Plc agreed to sell a 33.24 percent stake in a Japanese refiner to Idemitsu Kosan Co. for about 169 billion yen ($1.4 billion).

The deal for 125.3 million shares in Showa Shell Sekiyu KK is almost 23 percent more than the closing price Wednesday, according to data compiled by Bloomberg. The transaction is scheduled to be completed in 2016, according to a statement from The Hague, Netherlands-based company. The energy major will retain a 1.8 percent holding in the Japanese refiner.

Shell also announced on Thursday it plans to cut 6,500 jobs this year and reduce capital investment by $7 billion as it prepares for a “prolonged downturn.” Meanwhile, Japanese refiners are under mounting pressure from the country’s Ministry of Economy, Trade and Industry to merge and cut capacity as demand for oil products in Japan shrinks amid a declining population.

“Shell appears to be reducing their global oil footprint and focusing more on gas,” Tom O’Sullivan, founder of Tokyo-based energy consultant Mathyos, said by e-mail. “The Japanese oil market is contracting by about 2 percent a year or so and METI appear to be orchestrating an orderly reduction in Japan’s overall refining capacity.”

Showa Shell and Idemitsu agreed to advance discussions toward a merger, though the details haven’t been finalized, Showa Shell President Tsuyoshi Kameoka and Idemitsu President Takashi Tsukioka said at a briefing in Tokyo.

Shell Strategy

Showa Shell gained 6.2 percent, the biggest rise since Dec. 22, to close at 1,170 yen a share in Tokyo trading. Idemitsu lost 4 percent to 2,239 yen.

Idemitsu would control about a third of the domestic gasoline market under the deal, putting it on par with the country’s largest refiner, JX Holdings Inc., according to data published by Japan’s Fair Trade Commission in 2013.

Idemitsu plans to raise about 169 billion yen in debt to fund the purchase from Shell, Susumu Nibuya, a director at Idemitsu, said at the briefing.

Idemitsu has three refineries with total capacity of 535,000 barrels a day, the third-biggest Japan processor after JX and TonenGeneral Sekiyu KK, according to data compiled by Bloomberg. Showa Shell also owns three refineries with combined capacity of 445,000 barrels a day, according to the data.

“It’s getting closer to the end game,” Hidetoshi Shioda, a Tokyo-based analyst at SMBC Nikko Securities Inc., said by phone. After the latest deal, the Japanese refining industry may not need further mergers and can focus on growth areas, Shioda said.

(Updates with company comments in fifth paragraph.)
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