A Tokyo court has rejected a petition brought against Japan’s biggest oil refiner, Idemitsu Cosan, by its founding family. The family argued that a recent proposal for a share sale aims to dilute its voting strength so the refiner can merge with rival Showa Shell Sekiyu.
The court’s decision has cleared a path toward merging unless the family wins an appeal that has already been submitted.
The heirs of Idemitsu Cosan’s founder have been at odds with the company’s management over the merger for a while now, arguing that the two companies have incompatible cultures. The management, however, is pressing for the tie-up, and earlier this month proposed a share issue of 48 million new stock, seeking to raise US$1.23 billion (138.5 billion yen).
The placement would cut the founding family’s stake in the company from 33.92 percent to 26.1 percent, so the argument for diluting its voting rights does seem to reflect facts: if a shareholder has less than a third in the company, they cannot veto the resolution that would mark the start of the merger with Showa Shell Sekiyu.
The Japan News notes that the proposal for the placement followed several months of attempts on the part of the company’s management to persuade the founding family to sign up for the merger. To that end, the merger proposal was put on hold indefinitely. Now, these efforts have clearly failed and the management has changed tack.
Bloomberg noted in a report on the announcement of the share placement that it sent Idemitsu’s stock diving to the lowest in nine years, as the company tries to play to the government’s tune of consolidation in the oil refining segment as demand for fuel drops because of a population decline and an irreversible shift to more energy efficient vehicles.
The Idemitsu founding family could join the share sale and maintain its 33.92-percent stake, but to do this, it would have to find a substantial sum between now and July 26: the sale will run between July 20 and 26.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.