TOKYO -- Idemitsu Kosan and Showa Shell Sekiyu will go for a full-fledged merger rather than operating separately under a holding company, the two companies announced Thursday after three months of negotiations.
When they agreed in July to start integration talks, the precise method was not decided. The companies concluded that a merger that leaves one surviving entity would enable swift decision-making.
Idemitsu is the larger of the pair by sales, at 4.62 trillion yen ($37.3 billion) for fiscal 2014 against Showa Shell's 2.99 trillion yen. The merger ratio and surviving entity will be decided following asset assessment.
"We will work in a spirit of equality" in building a post-merger management structure, said Susumu Nibuya, an Idemitsu director. The company will buy roughly 33% of Showa Shell from Royal Dutch Shell in the first half of fiscal 2016, then proceed with the merger via a stock swap and other steps.
Service stations will keep their logos for a while until a new one is introduced. The new brand will be created to avoid giving the impression that one company has absorbed the other.
Idemitsu and Showa Shell have a total of seven oil refineries and around 7,000 stations. The refineries will not be integrated, since they complement one another. Management will "not force staff reductions to suit the company's plans," Nibuya said.
The companies aim to realize 50 billion yen in annual synergies in the fifth year by optimizing production and logistics.
Oil wholesalers are facing a harsh business climate as domestic demand shrinks. Idemitsu and Showa Shell decided on the business combination "so that we can put an end to a battle producing no winners and instead create a true leading company," said Hiroshi Watanabe, a Showa Shell executive officer.
The companies may have to make some painful decisions down the road. They will be put to the test of using existing resources to reap synergies from the integration.