Many hurdles lie ahead for Japan oil merger

Looking toward their October merger, Nippon Oil Corp. and Nippon Mining Holdings Inc. must slim down further to make the integration truly effective, as Japan’s gasoline demand continues to drift downward. With growing conviction that merger is the only way to address slumping business conditions, Nippon Oil President Shinji Nishio and Nippon Mining President Mitsunori Takahagi meet weekly and steer a preparatory committee and 11 subcommittees on issues including personnel policy and computer systems. The signing of a formal integration agreement was delayed by nearly seven months to prepare more documents that would be required under a new U.S. Securities and Exchange Commission rule. In the meantime, the business environment continues to deteriorate, raising more challenges for a successful merger. Reducing refining capacity is a chief example. Both firms think that the goal announced last December of cutting 400,000 barrels a day, about 20% of combined capacity, would make only a minimal contribution to the merger process. The selection of refineries to downsize or close is also difficult. Other problems include reorganizing the two groups’ existing gasoline brands (Nippon Oil’s Eneos and Nippon Mining’s Jomo) along with their retail networks, and selecting the integrated firm’s executives. While watching developments of the Nippon Oil-Nippon Mining merger, the rest of the sector has already begun moving to form a second leading group. (July 30, 2009)