* Idemitsu family may block takeover, veto board decisions
* Idemitsu: no change in plan to buy RDS' stake in Showa
* A deal would have been the second in Japan's refining
* Analysts say founding family worried about stake dilution
By Taiga Uranaka
TOKYO, Oct 13 Japanese refiner Idemitsu Kosan Co
Ltd has put on hold its plan for a full takeover of
smaller rival Showa Shell Sekiyu indefinitely after
running into fierce opposition from the Idemitsu founding
The postponement raises fresh questions over whether the two
firms will ever be able to combine businesses given that the
founding family, which owns just over a third of Idemitsu, could
either block a full deal outright or even if it was not blocked,
could veto board decisions.
The Idemitsu family argues that Idemitsu can and should
survive on its own, citing the firms' different corporate
cultures. Analysts say, however, the family is more likely
concerned that its stake in the company would be diluted.
Idemitsu management said on Thursday that it will press
ahead with one section of the deal - a signed agreement to
acquire a 33.3 percent stake in Showa Shell for about 170
billion yen ($1.7 billion) from Royal Dutch Shell this
month or in November. Royal Dutch Shell also said it was
committed to the sale.
The founding family has, however, previously claimed it will
be able to scuttle this part of the transaction too after buying
a small stake in Showa Shell.
That purchase has meant that if Idemitsu buys the stake from
Royal Dutch Shell, Idemitsu may have to make a tender offer for
the rest of Showa Shell shares at a price much higher than
current market levels - a move it would be reluctant to
Idemitsu CEO Takashi Tsukioka told a news conference that
while the company was no longer aiming for an full acquisition
by April 1 as initially envisioned, management had no intention
of abandoning the plan altogether.
"We have sent a message to our staff that we will definitely
complete the merger," he said.
A takeover was to have been the second in the domestic
refining sector after JX Holdings Inc's planned
takeover of TonenGeneral Sekiyu KK. Pressure to
consolidate, both within the industry and from the government
has been high, as gasoline demand declines due to a shrinking
Jiji news agency quoted Industry minister Hiroshige Seko as
saying on Thursday that the merger was important to boost
competitiveness in the refining sector.
A representative for the founding family was not immediately
available to comment.
Shares in Idemitsu, Japan's second-biggest refiner by sales,
fell 2.6 percent while Showa Shell's stock dropped 4 percent in
Thursday trade. Both companies currently have a market value of
around $3.6 billion although Idemitsu is bigger in terms of
sales and refining capacity.
Naoki Fujiwara, a fund manager at Shinkin Asset Management,
said a postponement would be disappointing.
"Consolidation is necessary when looking five to 10 years
ahead. The market is shrinking and refiners need to pursue
economies of scale," he said.
($1 = 102.9000 yen)
(Reporting by Taiga Uranaka; Additional reporting by Yuka
Obayashi, Osamu Tsukimori, Yoshiyuki Osada, Tetsushi Kajimoto
and Aaron Sheldrick in Tokyo as well as Karolin Schaps in
London.; Editing by Muralikumar Anantharaman and Edwina Gibbs)