Idemitsu in talks to buy Showa Shell

Japan’s refiners surged after two of the largest said they were discussing a tie-up, as falling demand for fuels spurs the industry to consider consolidation.

Idemitsu Kosan Co., Japan’s third-biggest refiner by capacity, and Showa Shell Sekiyu KK, the fifth-ranked, are holding talks, the companies said in separate statements Dec. 20. The announcements followed a Nikkei newspaper report that Idemitsu may bid as much as 500 billion yen ($4.2 billion) for Showa Shell, a 30 percent premium to last week’s closing value.

Showa Shell surged 27 percent to 1,293 yen as of 9:30 a.m. in Tokyo, while Idemitsu was up 2.7 percent at 2,080 yen. JX Holdings Inc., the nation’s biggest refiner, was up 5.3 percent.

Domestic demand for fuels has declined amid a shrinking population and a shift to more energy-efficient cars, prompting the Japan government to encourage consolidation and a reduction in processing capacity. Adding Showa Shell’s operations would give Idemitsu control of about 30 percent of the domestic gasoline market, and the deal would need approval from the Japan Fair Trade Commission, the Nikkei said. The two companies have almost 15,000 employees, according to data compiled by Bloomberg.

Royal Dutch Shell Plc. is the largest shareholder of Showa Shell, with a 33 percent stake, and is inclined to accept an Idemitsu bid, the Nikkei said. Royal Dutch Shell declined to comment.

A unit of Saudi Arabian Oil Co. owns 15 percent of Showa Shell, according to data compiled by Bloomberg. An official at the company’s office in Tokyo couldn’t immediately comment. (Bloomberg)