TonenGeneral Sekiyu KK : Notice Regarding Absorption-type Merger with EMG Marketing Godo Kaisha (a consolidated subsidiary) (269KB)

November 11, 2016

TonenGeneral Sekiyu K.K. (Stock Code: 5012 Tokyo Stock Exchange) Representative Director, President

Jun Mutoh Contact:

Public Relations & CSR EMG Marketing Godo Kaisha TEL: [phone]

Notice Regarding Absorption-type Merger with EMG Marketing Godo Kaisha (a consolidated subsidiary)

TonenGeneral Sekiyu K.K. ("TonenGeneral") announces its decision to conduct an absorption-type merger (the "Merger") with EMG Marketing Godo Kaisha ("EMGM"; head office: 1-8-15 Kohnan, Minato-ku, Tokyo; President: Takashi Hirose), a subsidiary of which 99% ownership is held by TonenGeneral, based on a resolution adopted at the board of directors meeting held today, and its execution of an absorption-type merger agreement with EMGM. The Merger is consistent with the plan disclosed in the "Notice Regarding Execution of Business Integration Agreement and Other Agreements between JX Holdings, Inc., and TonenGeneral Sekiyu K.K." dated August 31, 2016.

1. Objectives of the Merger

   TonenGeneral has agreed to consummate a business integration with JX Holdings, Inc. ("JXHD") in order to maximize their enterprise value by combining the business resources of their company groups and carrying out intensive business reforms, considering that international competition in petroleum and petrochemical product markets in Asia, including Japan, is expected to increase dramatically. After the business integration, the two companies aim to establish a strong corporate group under a holding company in order to develop into one of the most prominent and internationally-competitive comprehensive energy, natural resource, and materials company groups in Asia, and to contribute to the development of a sustainable and vigorous economy and society.

   On January 1, 2017, prior to the business integration, TonenGeneral will merge with and absorb EMGM, one of the main subsidiaries within its company group. It is expected that by simplifying the business structure and operations of the TonenGeneral group prior to the business integration with JXHD, the benefit of such business integration will be more likely to be achieved and will be completed more expediently.

2. Outline of the Merger

1. Schedule of the Merger

   September 1, 2016	Announcement of the record date for the extraordinary general meeting of shareholders of TonenGeneral
   September 30, 2016	Record date for the extraordinary general meetings of shareholders of TonenGeneral
   November 11, 2016 (today)	Meeting of the board of directors of TonenGeneral relating to approval for the execution of the absorption-type merger agreement Execution of the absorption-type merger agreement
   December 21, 2016 (scheduled)	Extraordinary general meeting of shareholders of TonenGeneral (approval for the absorption-type merger agreement)
   January 1, 2017 (scheduled)	Effective date of the Merger

   Note: In the event that the schedule above is changed due to necessity of the required processes or other reasons, TonenGeneral will disclose the revised schedule immediately.

2. Method of the Merger

   Consummation of an absorption-type merger in which TonenGeneral is the surviving company and EMGM is the absorbed company.

3. Details of stock allocation for the Merger

   TonenGeneral will allocate and deliver to Mobil Oil Exploration & Producing Southeast Inc., which has 1% ownership of EMGM as of the last time of the day immediately before the day on which the Merger is consummated, 969,696 shares of TonenGeneral common stock in lieu of all of their equity interest (the "Allocation"). The company will use a part of its treasury stock (1,771,441 shares as of September 30, 2016) for the transaction, and will not issue any new shares.

   The number of TonenGeneral shares which will be delivered is calculated by the following formula: the value of 1% ownership of EMGM divided by 979.6885 yen, which is the average of closing prices of TonenGeneral stock during the most recent three months period prior to November 10, 2016 (prices are rounded to the nearest fourth decimal place).

4. Handling of EMGM stock options and convertible bonds associated with the Merger EMGM has not issued any stock options or convertible bonds.

3．Basis for the calculation of the details of the Allocation in relation to the Merger

1. Basis and reasons for the Allocation

   TonenGeneral carefully examined the number of TonenGeneral common shares to be allocated and delivered in relation to the Merger, taking into account the analyses conducted by a third-party financial advisor, financial condition, assets, prospects of both companies, and other factors, on a comprehensive basis. Upon prudent and thorough discussions, the two companies have come to an agreement and concluded the number of TonenGeneral shares to be allocated and delivered upon the Merger, described in "2. Outline of the Merger (3) Details of stock allocation for the Merger" above, is appropriate.

2. Analysis

3. Names of the financial advisors and relationships with listed companies or the counterparty

   In order to ensure the fairness of the number of shares to be allocated, TonenGeneral appointed a third-party financial advisor for the calculation of the number of shares. TonenGeneral retained Deloitte Tohmatsu Financial Advisory LLC ("Deloitte Tohmatsu"). Deloitte Tohmatsu is a third-party appraiser independent from TonenGeneral and EMGM, and does not constitute a related party of the companies. Deloitte Tohmatsu does not have a material interest required to be disclosed in respect to the Merger.

4. Overview of the analysis

   In calculating the value of a share of TonenGeneral common stock, Deloitte Tohmatsu applied a stock price analysis, as TonenGeneral's common stock is listed on the first section of Tokyo Stock Exchange, Inc. ("TSE") and its market prices are publicly available. Deloitte Tohmatsu used November 10, 2016 as the reference date and reviewed the closing share price on the first section of TSE on the reference date and the arithmetic average of the closing prices during the one-month, three-month and six-month periods prior to the reference date.

   In calculating the value of 1% ownership of EMGM, which is not listed in stock exchanges, a comparable company analysis was applied, since there are multiple listed companies comparable to EMGM and it is feasible to calculate its value through a comparable company analysis. In addition, a discounted cash flow analysis ("DCF method") was used in the calculations to reflect the valuation of future business activities.

   The assumption of EMGM's future earnings plan, which was used for the DCF method by Deloitte Tohmatsu, includes the expectation that operating income in the fiscal year ending in December 2016 will increase by 213% compared to the average of actual performance in the fiscal years ending in December 2014 and December 2015, and will decrease by 45% compared to actual performance in the fiscal year ending in December 2015, in consideration of the high fluctuation of EMGM's operating income including an operating loss of 7.1 billion yen in the fiscal year ending in December 2014 due to a recognized inventory loss caused by a decline in product prices, and operating income of 11 billion yen in the fiscal year ending in December 2015 due to improvement of product margins. EMGM's earnings plan for the fiscal years ending in December 2017 onwards does not include a significant increase or decrease in earnings compared to the previous fiscal years.

   Applied methods		Number of shares of TonenGeneral common stock to be allocated
   Stock price analysis (TonenGeneral)	Comparable company analysis (EMGM)	837,349 - 996,200 shares
   Stock price analysis (TonenGeneral)	Discounted cash flow analysis (EMGM)	863,312 - 1,225,932 shares

   The calculated ranges of the number of shares of TonenGeneral common stock to be allocated to 1% ownership of EMGM under each calculation method are shown below.

   Deloitte Tohmatsu used information received from both companies and information that is publicly available in conducting its calculation of the number of shares of TonenGeneral common stock to be allocated for 1% ownership of EMGM. Deloitte Tohmatsu assumed that all of such materials and information are accurate and complete and did not independently verify the accuracy or completeness of these materials and information. In addition, Deloitte Tohmatsu did not independently conduct an evaluation, appraisal or assessment of the assets and liabilities (including contingent liabilities) of TonenGeneral and EMGM, including an analysis and evaluation of the individual assets and liabilities of them. Moreover, Deloitte Tohmatsu assumed that financial projections (including profit estimates and other information) of TonenGeneral and EMGM were reasonably prepared by the management of TonenGeneral and EMGM based on the best projections and judgment currently available to them.

5. Prospect of delisting and reason

   TonenGeneral's common stock will not be delisted upon the Merger with EMGM.

6. Other matters relating to the Merger

In order to conduct the Merger, the Merger needs to be approved at a shareholders meeting of TonenGeneral pursuant to the proviso to Article 796, Paragraph (2) and the provision of Article 795, Paragraph (2), Item (i) of the Companies Act, since TonenGeneral expects to recognize a loss from merger in TonenGeneral's non-consolidated financial results due to the Merger.

4．Overview of the companies relevant to the Merger (as of September 30, 2016)

(1) Company name	TonenGeneral Sekiyu K.K.	EMG Marketing Godo Kaisha
(2) Head office	1-8-15 Kohnan, Minato-ku, Tokyo	1-8-15 Kohnan, Minato-ku, Tokyo
(3) Names and titles of representatives	Jun Mutoh, Representative Director and President	TonenGeneral Sekiyu K.K., representative member of EMGM Takashi Hirose, President
(4) Main business	Manufacturing, processing and sales of petroleum and petrochemical products, supply of electricity, and other	Sales of petroleum and related products, corporate administration services
(5) Paid-in capital	35,123 million yen	20,000 million yen
(6) Date established	July 26, 1947	December 11, 1961
(7) Number of issued shares	366,000,000 shares	Not applicable
(8) Net assets	242,284 million yen (consolidated)	38,508 million yen (non-consolidated)
(9) Total assets	1,115,652 million yen (consolidated)	246,127 million yen (non-consolidated)
(10) Fiscal year-end	December 31	December 31
(11) Number of employees	3,345 (consolidated)	580 (non-consolidated)