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* To issue 48 mln shares, or about a third of outstanding shares
* Founding family lawyer: to seek court injunction to block issue
* Founding family opposes management's plan to merge with rival
* Family owns over one-third stake, enough to veto merger (Adds estimate of founding family stake dilution, share movement)
By Taiga Uranaka
TOKYO, July 3 (Reuters) - Japan's Idemitsu Kosan Co plans to issue new shares to raise $1.2 billion, diluting a stake held by its founding family that is locked in a fierce battle with the management over the latter's plan to merge with a smaller rival.
The founding family will seek a court injunction to block the share issue, a lawyer for the family said in a statement.
The family of founder Sazo Idemitsu, including octogenarian son Shosuke Idemitsu - a former president of the company and now honorary chairman, say a merger with Showa Shell Sekiyu would not work as the businesses were too different.
With control of over a third of the refiner, the family has the right to veto special items such as a merger.
But Idemitsu Kosan's planned sale of 48 million new shares would reduce the stake to about 26 percent, a calculation by Thomson Reuters shows, taking away the family's right to veto.
A company spokesman, however, said the purpose of the share sale was to raise necessary funds and not to dilute the founding family's stake, and that Idemitsu Kosan had no plans to hold a shareholders meeting to vote on the merger after the issuance.
Daiwa Securities and JP Morgan are joint global coordinators for the share offering, which is expected to raise 138.5 billion yen ($1.23 billion). Idemitsu Kosan said it would use part of the proceeds to repay 159 billion yen of loans taken to fund the acquisition of a stake in Showa Shell.
In a regulatory filing, Idemitsu Kosan said it would take counter action in case shareholders take legal action to block the share issue, but warned the sale would be cancelled if court injunction is granted and stays beyond the pay-in date.
Yohei Tsuruma, the lawyer who represents the founding family, said in a statement: "It's obvious that it will dilute the founding family's stake and we are planning to apply for court injunction to block the share issue."
Overcoming opposition from the founding family, last week, Idemitsu Kosan's CEO Takashi Tsukioka, who has been pushing for a full merger with Showa Shell, was re-elected to the company's board at an annual shareholders' meeting.
Idemitsu Kosan shares closed up 2.2 percent on Monday, outstripping a 0.1 percent rise in the Nikkei. ($1 = 112.5700 yen) (Additional reporting by Osamu Tsukimori, Reporting by Taiga Uranaka; Editing by Himani Sarkar)