TOKYO Idemitsu Kosan Co (5019.T) said on Monday it completed the purchase of just under a third of rival refiner Showa Shell Sekiyu KK (5002.T), cutting the amount of shares it planned to buy after facing opposition from Idemitsu's founding family.
Idemitsu's purchase, made possible after anti-monopoly regulators gave the go-ahead, is the latest twist in a protracted struggle with the family over plans to merge with Showa Shell.
Idemitsu had planned to buy 33.3 percent of Showa Shell from Royal Dutch Shell (RDSa.L) before proceeding with a full friendly merger as part of a wider shake up in Japan's bloated refining sector.
But the family, which owns 33.92 percent of Idemitsu Kosan and is led by 89-year-old patriarch Shosuke Idemitsu, has said the two companies are too different for any merger to work.
Idemitsu's management has been looking at various options to complete the merger but none of them have swayed the founding family.
The family has bought a small stake in Showa Shell to block the merger process.
"Taking into account the spirit of the tender offer regulations to the fullest extent, we have ... amended the number of shares to be purchased as stated above," Idemitsu said in a statement.
If Idemitsu's stake rose above one third this would require it to make an expensive tender offer for Showa Shell shares under Japan's securities rules.
It bought 117.76 million shares, or 31.3 percent, in Showa Shell for 159 billion yen (£1.09 billion), compared with a planned purchase of 125.26 million shares. This prevents Idemitsu from having to make the tender offer.
Idemitsu has paid no penalty to Shell for change of an agreement originally signed in July 2015, Soichi Kobayashi, Idemitsu's general manager of public relations, said.
The company will respect Showa Shell's independence and has no plans to put directors on its board, he said. But both Idemitsu and Showa Shell continue to talk about how to complete the merger.
"We haven't changed our opposition to the merger. We will closely monitor any actions management takes," a lawyer representing the founding family told Reuters after the announcement.
The Japan Fair Trade Commission on Monday also approved plans by the country's biggest refiner, JX Holdings (5020.T), to acquire rival TonenGeneral Sekiyu KK (5012.T) for about 350 billion yen.
The two deals come after pressure from the government for consolidation in an industry with too much capacity and stagnating demand from a falling population.
($1 = 117.2100 yen)
(Writing by Aaron Sheldrick; Editing by Edwina Gibbs and Jane Merriman)