Idemitsu indefinitely delays Showa Shell takeover on founding family opposition

By Taiga Uranaka

TOKYO (Reuters) - Japanese refiners Idemitsu Kosan Co Ltd and Showa Shell Sekiyu said on Thursday they were delaying a planned integration indefinitely, putting in serious doubt a deal that has been fiercely opposed by the Idemitsu founding family.

Idemitsu was scheduled to acquire Showa Shell by April 1 next year, but the companies announced the indefinite postponement in a joint statement, citing a lack of progress in deal talks "due to difficulties in consultations with some stakeholders". They did not give a new schedule for the integration.

In a separate statement, Idemitsu, however, said there was no change as of now in its plan to acquire a 33.3 percent stake in Showa Shell for about 170 billion yen (1.39 billion pounds) from Royal Dutch Shell (RDS) this month or in November. The Idemitsu family is also opposed to the RDS stake purchase.

The postponement raises fresh questions over whether Idemitsu management will ever be able to pull off the deal given that the founding family, which owns just over a third of the firm, could either block the deal outright or even if it was not blocked, could veto board decisions.

The deal was to have to have been the second in the domestic refining sector after JX Holdings Inc's planned takeover of TonenGeneral Sekiyu KK. Pressure to consolidate, both within the industry and from the government has been high, as gasoline demand declines due to a shrinking population.

"If they are really postponing, it's disappointing," Naoki Fujiwara, a fund manager at Shinkin Asset Management, said before the official announcement of the delay, which was earlier reported by the Nikkei business daily.

"Industry consolidation is necessary when looking five to 10 years ahead. The market is shrinking and refiners need to pursue economies of scale," Fujiwara said.

The Idemitsu family argues that Idemitsu can and should survive on its own, citing the firms' different corporate cultures. Analysts say, however, the family is more likely concerned that its stake in the company would be diluted.

Shares in Idemitsu, Japan's second-biggest refiner by sales, fell 2.6 percent while Showa Shell's stock dropped 4 percent in Thursday trade. Both companies currently have a market value of around $3.6 billion although Idemitsu is bigger in terms of sales and refining capacity.

A representative for the founding family was not immediately available to comment.

Under the plan, Idemitsu was to buy the Showa Shell stake from RDS, which was set to be followed by a purchase of the rest of Showa Shell shares through a share swap at a later date.

The Nikkei daily reported Idemitsu plans to talk with Royal Dutch Shell about its planned stake purchase, given the postponement of the full acquisition.

(Reporting by Taiga Uranaka; Additional reporting by Yuka Obayashi, Osamu Tsukimori and Yoshiyuki Osada; Editing by Edwina Gibbs and Muralikumar Anantharaman)