Nippon Oil, Nippon Mining Considering Plan to Merge

By Tak Kumakura and Shigeru Sato

Dec. 4 (Bloomberg) -- Nippon Oil Corp., Japan’s largest refiner, and Nippon Mining Holdings Inc. are considering a merger that would create a company with almost 12 trillion yen ($129 billion) in annual sales. The shares rose the most in a month.

The two Tokyo-based companies will hold separate board meetings today to discuss the plan to combine, Nippon Mining said in a statement. A decision on the merger will be made today, Nippon Oil said in a separate statement to the Tokyo Stock Exchange.

Japanese refiners are cutting output as a global economic slowdown drags down fuel demand at home and overseas. Nippon Oil and Nippon Mining have both lost about 60 percent of their market value this year.

“This merger would be a stimulant for their rivals like Idemitsu Kosan Co. and Cosmo Oil Co. to find partners for mergers,” said Futoshi Usui, an analyst at Credit Suisse in Tokyo. “As a national energy policy, Japan’s government has been seeking to create an oil major in the next decade to compete with international majors like Exxon Mobil Corp. and Royal Dutch Shell Plc.”

Nippon Mining rose 13.7 percent to 291 yen at 9:51 a.m., the biggest gain since Oct. 29. Nippon Oil rose 10 percent to 352 yen, the most in over a month. That compares with a 7.6 percent gain by the 11-member Topix Oil and Coal Producing Index, the best- performing group on the broader Topix.

The two companies will combine under a holding structure by next year, creating Japan’s fourth-largest corporation by sales, Nikkei English News reported earlier. The companies have a combined market value of more than 706 billion yen, including 238 billion yen for Nippon Mining.

The merger ratio and the management of the combined company haven’t been decided, Nikkei said, without citing anyone.

Historic Merger

Presidents of both companies plan to meet the press today in Tokyo, Nippon Mining spokesman Masaki Takata said by telephone.

The combined company would operate 10 refineries and account for 33 percent of Japan’s gasoline sales, almost double the market share of the next-biggest supplier, Exxon Mobil Corp., Nikkei said. The deal will be the biggest merger in Japan’s petroleum industry since Nippon Oil acquired Mitsubishi Oil Co. in 1999, according to the report.

Nikkei said the merger would boost profitability by eliminating excess infrastructure.

Nippon Oil plans to cut output this month by 18 percent from a year earlier. The company will close one of its plants next year because of shrinking demand.

Nippon Mining owns refiner Japan Energy Corp. The new business will likely have three units under one holding company - - refining and sales, oil development and metals, Nikkei said.

To contact the reporter on this story: Tak Kumakura in Tokyo tkumakura@bloomberg.net; Shigeru Sato in Tokyo at ssato10@bloomberg.net;