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Idemitsu, Showa Shell shares slide after Idemitsu family moves to block deal

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Markets | Wed Aug 3, 2016 11:53pm EDT

* Idemitsu family buys small stake in Showa Shell

* Purchase raises prospect of possibly expensive tender offer

* Fears grow that move may derail deal

* Shares in Showa Shell down 8 pct, Idemitsu down 7 pct 

By Makiko Yamazaki and Chang-Ran Kim

TOKYO, Aug 4 A move by Idemitsu Kosan Co Ltd’s founding family to block management’s plan to acquire smaller rival Showa Shell Sekiyu KK sent shares in the Japanese refiners tumbling on Thursday as concerns grew that the family might well succeed.

Idemitsu has said its planned takeover of Showa Shell, which would create Japan’s No.2 refiner by capacity, is necessary to cope with lower demand but the family argues the two companies are too culturally different for a merger to work.

The founding family said on Wednesday it had bought a 0.1 percent stake in Showa Shell, sufficient to complicate any takeover as it raises the prospect that Idemitsu would, contrary to current plans, have to make an expensive tender offer for Showa Shell shares.

Analysts and fund managers said prospects for the deal were now very uncertain although some said they still thought Idemitsu may eventually launch a tender offer.

“There is still a risk of cracks emerging in the proposed reorganisation. That risk is the possibility the merger itself is abandoned in the event of mounting criticism from inside and outside the firm,” Hidetoshi Shioda, analyst at SMBC Nikko Securities, wrote in a note to clients.

In early afternoon trade, shares in Idemitsu were down 7 percent while Showa Shell’s stock fell 8 percent to a seven-month low.

Idemitsu agreed in July 2015 to the private purchase of Royal Dutch Shell PLC’s 33.2 percent stake in Showa Shell for 1,350 yen a share or $1.7 billion, more than a third higher than its current value. They then agreed in November to work towards a full merger as early as this October.

With the founding family’s purchase, Showa Shell holdings owned by Idemitsu and related parties would exceed a third and by law, Idemitsu would have to launch a takeover bid on the open market that would likely attract interest from other Showa Shell shareholders eager to sell at that high price.

An Idemitsu spokesman said at this point the company had no plan to change the proposed buyout scheme or to launch a takeover bid on the open market. ($1 = 101.0600 yen) (Reporting by Makiko Yamazaki and Chang-Ran Kim; Additional reporting by Hideyuki Sano; Editing by Edwina Gibbs)

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