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* Two firms to hold around 20 pct stakes in each other -Nikkei
* Move comes amid Idemitsu founding family's opposition for merger (Adds comments from statement, background)
TOKYO, Dec 7 (Reuters) - Japanese oil refiners Idemitsu Kosan and Showa Shell Sekiyu said they have not decided on a capital and business tie-up as reported by some media organisations, and that they are still working towards an eventual merger.
The Nikkei business daily reported earlier on Wednesday that the two companies have begun negotiating the tie-up that would exploit synergies, but not require shareholder approval.
They aim to have it operational ahead of a planned merger that has been delayed due to fierce opposition from Idemitsu's founding family, it said.
"No formal decision has been made at this stage," the two refiners said in a joint statement, referring to the reported tie-up talks.
The management of Idemitsu, Japan's second-biggest refiner by sales, has argued that a merger is the best course of action in a shrinking domestic oil market, where five large and three small refiners compete.
But descendants of founder Sazo Idemitsu, including octogenarian son Shosuke Idemitsu - a former president of the company and now honorary chairman - have said the businesses are too different for a merger to work and they see no room for compromise.
Idemitsu's management in October put a full takeover on hold indefinitely although it had planned to press ahead with a signed agreement to acquire 33.3 percent of Showa Shell for 169.1 billion yen ($1.48 billion) from Royal Dutch Shell .
The setbacks had raised questions over whether the two firms will ever be able to combine businesses, given that the Idemitsu founding family, which owns just over a third of the company, could block a full deal outright.
The Nikkei said that under the capital and business tie-up plan, Idemitsu will acquire the one-third stake in Showa Shell within several days once it gets approval from the Japan Fair Trade Commission.
It then plans to hand over ownership of a little over 8 percent stake to a trust bank, thereby keeping Idemitsu's voting rights in Showa Shell at just under 25 percent.
Showa Shell, meanwhile, is set to buy a stake of around 20 percent in Idemitsu, the report added. Under Japanese law, if Idemitsu's stake in Showa Shell was bigger than 25 percent, Showa Shell's stake in Idemitsu would become void.
Such a capital tie-up would not need a shareholders' approval and protect the independence of Showa Shell's management, Nikkei said.
The two firms will also jointly operate their seven group refineries, which is likely to lead to annual savings of around 30 billion yen ($264 million), compared with around 50 billion yen to be achieved from the full integration, the Nikkei said. ($1 = 114.1100 yen) (Reporting by Osamu Tsukimori; Editing by Stephen Coates and Muralikumar Anantharaman)