JX Holdings Inc, Japan’s biggest oil refiner by sales, has agreed to pay about 352 billion yen ($3.4 billion) in stock for TonenGeneral Sekiyu KK , the country’s third-largest refiner by sales.
The companies, which reached a basic merger agreement last December, said Wednesday in separate statements that JX would pay 2.55 shares for each TonenGeneral share. Based on the ratio and JX’s closing price on Tuesday,
TonenGeneral is valued at 965.175 yen per share, representing about a 6.8 percent premium to its close the prior day.
The merger will create a firm that will control over half of Japan’s gasoline sales. The country’s government has been encouraging consolidation in its refining sector, where five big refiners and three smaller ones are vying for business from a shrinking population increasingly opting for more fuel-efficient vehicles.
The statement also said that TonenGeneral will be delisted on March 29, 2017, and the new entity, to be called JXTG Holdings, will be formed effective April 1 next year. The deal is subject to approval from the relevant governmental authorities.
In line with the government-supported consolidation drive, rival refiners Idemitsu Kosan Co and Showa Shell Sekiyu KK are planning to merge next April but the plan is facing opposition from the founding Idemitsu family.
JX Holdings President Yukio Uchida will head the new company, JXTG Holdings, while TonenGeneral Sekiyu President Jun Mutoh will become vice president. JX Holdings Chairman Yasushi Kimura will be chairman of the new company.
The companies said the new firm aims to boost annual profit by at least 100 billion yen within three years and set a goal for annual recurring profit of 500 billion yen starting from the 2019 fiscal year.
“We have reached a common understanding that business reform that cannot be done alone is essential to deal with the future business environment,” Uchida said at a news conference.
The 100 billion yen profit target will be reached through expected savings of 28 billion yen by optimising the supply and distribution of fuels; 40 billion yen from the integrated operation of a refinery and chemical plants in Kawasaki, Japan, and other manufacturing optimisation.
Mutoh said savings from the merger will not include job cuts from consolidating refineries and added the new firm would announce plans for consolidating refineries within a few years.
JX was advised by Nomura Securities, Citi Global Markets Japan, Mizuho Securities and Daiwa Securities.
TonenGeneral was advised by Merrill Lynch Japan Securities and Mitsubishi UFJ Morgan Stanley Securities.