Shares in the two companies, which had run up strongly ahead of the integration, initially fell sharply on details of the deal before closing down around 3 percent in a firmer overall market.
The new firm will target annual savings of around 60 billion yen ($535 million) in 2021/22 from the integration, up by 10 billion yen from a previous projection, the two companies said.
“The latest announcement spurred feelings that the stock has run out of new material,” said a source at a Japanese brokerage.
The refiners announced in July they had finally reached a deal to merge, in April next year, after Idemitsu’s founding family dropped its long-standing opposition to the plan.
Idemitsu, Japan’s No.2 oil refiner by sales, has long been keen to merge its operations with fourth-ranked Showa Shell in response to shrinking gasoline demand in the country.
The combined firm would account for about 30 percent of Japan’s domestic gasoline sales, second only to JXTG Holdings (5020.T), which controls about half the market.
In a joint statement on Tuesday, the companies said 0.41 Idemitsu shares would be exchanged for each Showa Shell share. Idemitsu will be the surviving entity with Showa Shell shares to be delisted March 27.
Based on the ratio and Idemitsu’s closing price on Monday, Showa Shell is valued at 2,431.3 yen per share, a slight discount to its 2,441 yen close on Monday. That puts the deal value at about 630 billion yen ($5.6 billion) for the nearly 69 percent of Showa Shell that Idemitsu does not already own.
Idemitsu shares fell as much as 9 percent before ending down 3.2 percent, while Showa Shell shares fell as much as 8 percent before closing down 2.6 percent.
Idemtisu President Shunichi Kito, who will serve as president of the combined firm, ruled out combining the group’s seven refineries in Japan with total crude refining capacity of 1.088 million barrels per day (bpd) as all were competitive with room for exports.
The new firm has a higher ratio of residue cracking capability at its refineries than rivals, he said.
The group could raise the capacity of heavy oil processing units at Idemitsu’s 190,000-bpd Chiba refinery in response to the International Maritime Organization’s move to ban use of high sulfur fuel, he added.
Reporting by Osamu Tsukimori and Chris Gallagher; writing by Chris Gallagher; editing by Stephen Coates and Richard Pullin