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The Japan News/Yomiuri
The Japan News/Yomiuri
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The Yomiuri Shimbun

Idemitsu-Showa Shell integration should boost momentum for earnings

Will the latest business integration agreement provide momentum for greater earning power? The key to this will be how the effects of integration are manifested.

Idemitsu Kosan Co., the nation's second-largest oil wholesaler, and Showa Shell Sekiyu K.K., the fourth-largest wholesaler, have agreed to integrate their business management in April.

The move will transform the domestic oil wholesale industry into one dominated by JXTG Holdings, Inc., which holds 50 percent of the market, and the Idemitsu-Showa Shell group.

The Idemitsu-Showa Shell integration agreement has finally been achieved three years after a basic agreement was reached between the two companies in 2015.

Demand for oil products has continued to shrink due to the decrease in population and the spread of eco-friendly cars. The number of filling stations nationwide has dropped to close to half of its peak.

The sense of urgency held by both companies apparently prompted them to reach a compromise, knowing they will not be able to survive unless they shore up their business foundation.

They deserve praise for their decision to move forward with industry realignment through tenaciously continuing talks.

A pressing task facing them is to make as much progress as possible in increasing their business efficiency.

The integration plan will leave them with seven oil refineries nationwide that serve as the mainstay of their business operations. Some have said that their equipment is excessive, compared with demand.

Efforts should be made to closely examine whether there is any further room for streamlining their business operations.

Share future strategy

Cultivating a new source of earnings is also indispensable. It is important to make steady progress in tackling such tasks as selling electricity and gas for ordinary households and building outlets for the provision of hydrogen, a gas that is expected to be a next-generation fuel. Tying up with other energy corporations will also be an option for them.

Amid a continued decline in the domestic market, it will be unavoidable to reinforce business operations overseas, including other parts of Asia where there has been continued growth.

Idemitsu has embarked on a project to operate a refinery in Vietnam, while also marketing oil products in the United States and Australia. However, the scale of its business operations overseas is small.

It is no easy task to expand the scope of one's business operations into overseas markets, where large-scale U.S. and European major oil companies are fiercely competing. It is necessary to carefully and meticulously develop business operations suited to the needs of each area, while considering the risks involved.

Initially, the Idemitsu-Showa Shell integration plan was considered on the basis of an equal merger. Ultimately, however, they settled on a formula by which both companies will continue to exist.

This was because Idemitsu's founding family, which holds about 30 percent of the company's issued stock, opposed the merger plan, citing such reasons as differences in business philosophy.

Idemitsu will become a parent company, with Showa Shell coming under its umbrella as a subsidiary. The parent corporation's name will include Idemitsu, and gas stations will also use the same logo mark as before.

This seems to reflect consideration for the founding family, which adheres to the traditions of Idemitsu.

There will be a limit to what can be achieved through the integration plan, compared with a scheme by which the two corporations would be merged into one. For instance, there will be a lack of progress in consolidating the divisions that overlap each other at these companies. It is important for them to overcome the differences in their respective corporate culture and share a future strategy.

(From Yomiuri Shimbun, July 15, 2018)

Read more from The Japan News at https://japannews.yomiuri.co.jp/

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