Photo/IllutrationThe logo for Showa Shell Sekiyu KK and the logo for Idemitsu Kosan Co.

  • Photo/Illustraion

Activist investor Yoshiaki Murakami is being hailed for breaking a more than two-year deadlock that had threatened to thwart plans to create a new oil industry giant in Japan.

Murakami, a former bureaucrat who founded the Murakami Fund, was brought to mediate in the row between the founding family of Idemitsu Kosan Co. and the company's management over the proposed merger with Showa Shell Sekiyu KK.

Idemitsu's chairman, Takashi Tsukioka, credited Murakami with putting the deal back on course.

“We were able to repair our relations with the founding family after Murakami advised them and underscored the importance of the merger,” Tsukioka told a news conference in Tokyo on July 10. “I am grateful to him.”

Idemitsu ranks as the nation’s No. 2 oil refiner in terms of sales. The merger in April will turn fourth-ranked Showa Shell into its wholly owned subsidiary via a share swap, according to the companies.

The new entity, Idemitsu Showa Shell, will be second only to JXTG Holdings Inc. in the oil wholesale market.

“We have reached a secure agreement with major shareholders and Showa Shell over the integration of the management,” Tsukioka told reporters. “From now on, we will only look and move forward.”

Idemitsu and Showa Shell are expected to decide the stock exchange ratio in October.

They will hold extraordinary shareholders meetings in December to seal the deal.

Showa Shell will be delisted on March 29.

The merger of two key players follows a similar move in April 2017 by JX Holdings Inc. and Tonen General Sekiyu KK, which established JXTG Holdings.

Idemitsu and Showa Shell will use their own names and logos at gas stations for the time being.

The two companies initially reached a basic merger agreement in July 2015. It was a strategic move to survive in a shrinking market due to a declining population and rise of eco-friendly vehicles.

But Idemitsu’s founding family, which at the time had veto power because of its large stake in the company, expressed vehement opposition to the merger at the company’s general shareholders meeting in June 2016.

It cited differences in corporate culture between the two companies. The family now controls about 28 percent of Idemitsu’s shares.

Idemitsu’s top management tried desperately to get the family to go along with the plan, but the members stood firm.

The merger proposal had been in deadlock until April, when talks resumed. Tsukioka said Murakami turned things around after being brought in as a go-between at the request of a business leader close to the family.

Founding family members agreed July 10 to drop their opposition at the extraordinary shareholders meeting provided they can nominate two of the eight in-house directors of the merged company.

A lawyer representing the founding family said in a statement that the members agreed to drop their opposition after they determined the corporate philosophy of the Idemitsu founder will continue to be respected at the new entity.

A well-placed source said Murakami tipped the family toward the merger agreement by suggesting that the company buy back 12 million Idemitsu shares prior to the extraordinary shareholders meeting in December to give the family a bigger stake in the company.

The stock repurchase would allow the company to regain the family's faith following the management's decision to make a public stock offering in July last year that reduced the family's holding.

The stock offering was a ploy by Idemitsu's management to undermine the influence of the family, which then controlled more than 30 percent of Idemitsu's shares. It exacerbated the company's relations with the family.

Murakami also proposed that Idemitsu's management pay hefty dividends to shareholders by setting aside more than half of the company’s net profits from fiscal 2019 to fiscal 2021.

The two proposals, which are certain to bring a financial windfall to the family, were the only way to win the members over, according to the source.

“As a former industry ministry bureaucrat, Murakami was keenly aware of the need for a realignment of the oil refinery industry and spent a great deal of time talking the family into agreeing to the merger,” Tsukioka said in appreciation of his efforts.

(This article was written by Rintaro Sakurai and Akihiro Nishiyama.)