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Japan’s Idemitsu Kosan to take over smaller refiner Showa Shell in $4 billion deal

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By Reuters | 12 Nov, 2015

TOKYO: Japan’s Idemitsu Kosan Co agreed on Wednesday to take over smaller refiner Showa Shell Sekiyu in a deal worth about $4 billion that will create Japan’s second-biggest refiner by capacity.

The refiners are finalising the terms of the deal and expect the combined company to start operating between October next year and April 2017, they said in a statement.

A person familiar with the deal said Idemitsu would buy shares in Showa Shell in a tender offer that could be worth as much as 500 billion yen ($4.1 billion).

The takeover seals plans set in motion in July when Idemitsu Kosan agreed to buy Royal Dutch Shell’s one third stake in Showa Shell. Saudi Arabia’s state-owned oil firm Saudi Aramco also owns about a 15 per cent stake in Showa Shell.

The Japanese government has been encouraging consolidation in the refining sector, where five big firms and three smaller ones are vying for business in a country where a shrinking population is increasingly opting for more fuel efficient vehicles.

Together, Idemitsu Kosan and Showa Shell control about 28 per cent of Japan’s refining market, lagging behind JX Holdings Inc, which has a 35 per cent share.

Japanese refiners have also been hit badly by the slump in crude prices since June last year along with declining margins, with Showa Shell on Wednesday revising its full-year earnings to a loss.

The company said it expects to have inventory losses of 43 billion yen ($350 million) for the year through December.

Idemitsu Kosan has also slashed its profit forecast in half for the year through March.

A takeover of Showa Shell by Idemitsu would be the second merger in the industry since JX was formed in 2010.

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