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Idemitsu delays Showa Shell stake purchase as regulatory review not finished

By Taiga Uranaka | TOKYO

Japanese refiner Idemitsu Kosan Co has postponed its acquisition of Showa Shell Sekiyu shares as regulatory approval is taking longer than expected – a delay that comes amid uncertain prospects for the deal due to a spat with the Idemitsu founding family.

Idemitsu management now expects to purchase its stake from Royal Dutch Shell in October or November instead of this month.

Public broadcaster NHK reported the review by Japan’s Fair Trade Commission was taking time as it is also reviewing another merger in the sector – the planned takeover of TonenGeneral Sekiyu KK by JX Holdings Inc.

A Fair Trade Commission spokesman declined to comment.

In July last year, Idemitsu Kosan agreed to buy a 33.3 percent stake for about 170 billion yen (1.27 billion pounds), with plans to buy the rest of Showa Shell shares with a share swap at a later date.

As with the JX-Tonen deal, the government has been keen for the sector to consolidate as demand for gasoline in Japan has been on the decline due to a shrinking population.

The Idemitsu family, which claims to control enough votes to veto the deal, has argued the company’s close connection to Iran makes a merger with Showa Shell, which has close ties to Saudi Arabia, difficult. Analysts say the family, which owns just over a third of Idemitsu, is more likely concerned that its stake in the company would be diluted.

The founding family has moved to block the deal by purchasing 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.

With the family’s purchase, Showa Shell holdings owned by Idemitsu and related parties would exceed a third. By law, Idemitsu management would have to launch a takeover bid on the open market that would attract other shareholders eager to sell at the agreed price of 1,350 yen – more than 50 percent higher than the current price.

Idemitsu said on Wednesday that it and Showa Shell still planned to launch their combined company on April 1 next year. Previously it has said it aims to resolve the dispute with the founding family through talks.

A Shell spokesman said: “Shell is committed to selling the majority of its shareholding in Showa Shell, as agreed with Idemitsu in July 2015. We trust that regulatory approval will be granted swiftly so that the transaction can be completed, in accordance with all legal requirements, soon.”

“Separately, we remain supportive of the proposed merger between Idemitsu and Showa Shell,” the spokesman said.

To get round any requirement that Idemitsu might have to make a general offer for all Showa Shell shares, Idemitsu management is looking at possibly cutting the size of the stake it plans to purchase from Royal Dutch Shell, a person with direct knowledge of the matter has told Reuters.

Idemitsu has declined to comment on that possibility.

(Reporting by Taiga Uranaka; Additional reporting by Osamu Tsukimori and Ron Bousso; Editing by Edwina Gibbs and Mark Potter)

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