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Showa Shell Sekiyu K.K. and Idemitsu Kosan Co., Ltd. announced that they have signed a Memorandum of Understanding (MoU) for the Business Integration of Showa Shell and Idemitsu based on the spirit of equal partnership.
The companies have set a merger as the basic structure of the business integration subject to further consideration and discussion, and will definitely agree on the method of the business integration. The schedule will be discussed further, with the aim to commence due diligence of the companies and their subsidiaries after the signing of the MoU. This will be followed by the signing of a binding definitive agreement providing for the definitive details and terms of the business integration, approval at the shareholders meetings of both parties, and the launch of the NewCo between October 2016 and April 2017.
The name of the NewCo is currently undetermined and is scheduled to be decided upon further discussion between the companies. While the structure of the Board of Directors will be decided upon further discussions between the companies, representative directors and executive directors are expected to comprise an equal number of representatives from each company.
The NewCo will continue to use the existing brands of both companies for a certain period after the business integration. Regarding the service station brands in Japan after the certain period, the NewCo's management will proactively discuss and decide on the introduction of a new brand to be used as a unifying force in order for dealers/distributors of both companies to join forces and compete with other brands in the domestic market.
Regarding the NewCo's basic strategy for its domestic downstream and petrochemical businesses, the companies have, to date, proactively achieved profitability improvement through improved efficiency of refineries as well as rationalization of logistics and their sales network. Currently, the companies operate 7 refineries and about 7,000 service stations in total in Japan. The companies will aim to achieve approximately 50 billion yen of annual synergies by the 5th anniversary of the business integration through cost reduction and enhanced added value in refinery, logistics, sales, administrative functions, and other corporate functions.
Keywords: Service Station, Downstream, Petrochemical, Refineries, ARC Advisory Group.