Idemitsu Family Buys Showa Shell Stake in Bid to Stop Merger

  • Showa Shell shares advance as much as 12% in Tokyo trading
  • Shosuke Idemitsu purchases 400,000 shares in Showa Shell

Idemitsu Kosan Co. founding family descendant Shosuke Idemitsu has begun buying shares in rival Japanese oil refiner Showa Shell Sekiyu KK in a bid to block a proposed merger between the two companies.

The Idemitsu founder’s son purchased 400,000 Showa Shell shares and may buy more until his namesake company gives up on the deal, according to a statement distributed to reporters in Tokyo on Wednesday. Showa Shell rose as much as 12 percent to 1,014 yen, the biggest intraday gain in more than a year, and closed 3.8 percent higher. Idemitsu fell 3.9 percent to 1,984 yen.

Idemitsu is planning to buy Royal Dutch Shell Plc’s 33.2 percent stake in Showa Shell. With the addition of the founding family’s new Showa Shell shares, Idemitsu would hold more than one-third of the company, which under Japanese laws would require Idemitsu to do a tender offer for shares, according to the statement.

“The founding family opposes the merger of Idemitsu and Showa Shell and now they have taken action, but it may not be enough to block the deal,” said Makoto Shiono, a Tokyo-based partner at M&A consulting firm Industrial Growth Platform Inc. “Idemitsu could go back to Royal Dutch Shell and ask the oil major to change the agreed terms, and trim a bit of the volume of the Showa Shell stake.”

Idemitsu Family

The Idemitsu family has no plans to reveal any future additional Showa Shell share purchases because that would potentially allow Idemitsu Kosan to renegotiate with Royal Dutch Shell the number of shares it’s buying and avoid a tender, according to the statement. If Idemitsu is forced to tender an offer, Showa Shell would likely oppose the deal to avoid becoming a subsidiary of Idemitsu, the family’s lawyer Kenichi Kanbe told reporters in Tokyo on Wednesday.

Idemitsu considered acquiring Showa Shell in a 500 billion yen deal by conducting a tender offer, the Nikkei newspaper reported in December 2014. In July 2015, Idemitsu agreed to buy a 33 percent stake in Showa Shell and said talks were advancing toward a “merger of equals.”

The Idemitsu family controls about 34 percent of Idemitsu, enough to block the merger, as the company needs more than two-thirds of shareholder votes. The family’s control over the company could be lessened if the merger is achieved through a share swap. Details of the merger terms haven’t been announced.

A spokeswoman for Showa Shell said the company couldn’t immediately comment. Idemitsu said in a statement on Wednesday that it would continue discussions with major shareholders to complete the merger.

Iran-Saudi Arabia

Including the equity purchased by Shosuke Idemitsu, the amount of shares that would be attributed to Idemitsu Kosan is 125,661,200, which would exceed one-third of Showa Shell’s total shares, according to the statement.

The family opposes the merger partly because of Showa Shell’s close ties with Saudi Arabia. Idemitsu Kosan has maintained a close relationship with Iran and descendants of the company’s founder are concerned about the merger amid intensifying tensions between the two countries.

The 400,000 shares of Showa Shell purchased by Shosuke Idemitsu equals about 0.1 percent of the company’s outstanding shares.

Before it's here, it's on the Bloomberg Terminal.