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Shell Down as Idemitsu-Showa Shell Merger Gets Delayed


Integrated energy major, Royal Dutch Shell plc RDS.A saw its shares dip almost 1% in the intraday session after Japanese oil wholesalers, Showa Shell Sekiyu K.K. and Idemitsu KosanCo., announced the indefinite deferment of their merger. The decision to postpone the impending merger between the duo stemmed from the persistent opposition by Idemitsu’s founding family.

Idemitsu and Showa Shell first announced their plans to merge in 2015. Under the plan, Idemitsu was to buy Royal Dutch Shell’s 33.2% stake in Showa Shell. Consequently, the company was to purchase of the rest of Showa Shell shares through a share swap at a later date. The merger was scheduled to be completed by Apr 1, 2017.

However, the merger became increasingly uncertain after founding members of Idemitsu, who hold a 34% interest in the company, announced their opposition to the plan in Jun 2016. They cited differences in corporate culture as one of the primary reasons for the opposition.

Nevertheless, Idemitsu is expected to purchase the one-third stake in Showa Shell from Shell for $1.7 billion either this month or in November.

The backdrop for the proposed merger could be attributed to the fast-shrinking Japanese market, shaken up by slowing gasoline demand due to population decline and increasing popularity of environmentally friendly cars in recent years.

Headquartered in Hague, the Netherlands, Shell is one of the largest integrated oil and gas companies in the world. It explores for and extracts crude oil, natural gas and natural gas liquids. It has interests in chemicals as well as power generation and renewable energy.


Shell currently carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the broader energy sector include W&T Offshore Inc. WTI, Ultra Petroleum Corp. UPLMQ and CONE Midstream Partners LP CNNX. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last four quarters, W&T Offshore posted an average positive earnings surprise of 23.63%.

Ultra Petroleum, on the other hand, posted an average positive earnings surprise of 65.91% in the last four quarters.

In the current quarter, CONE Midstream Partners posted a positive earnings surprise of 19.38%.

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