Japan based oil refiner JX Holdings has signed an agreement to acquire its rival TonenGeneral Sekiyu for $3.4bn in a bid to create the county’s biggest oil refiner.

As part of the deal, JX Holdings has agreed to give 2.55 shares for each TonenGeneral share.

The deal is part of the two firms’ plans to maximize their enterprise value by combining the business resources while carrying out intensive business reforms.

A new company will be created, effective April 1 next year, as a result of the merger deal.

The new combined company, JXTG Holdings, aims to achieve more than JPY100bn ($874.5m)  in synergies annually within three years after the business integration.

As part of this effort, JX and TonenGeneral have agreed to integrate operations of a refinery and chemical plants in the Kawasaki area near Tokyo.

JX Holdings said in a statement: “Demand for petroleum products in Japan has declined by about 23% over the past 10 years. With the decreasing population, the growth of fuel-efficient vehicles and the shift to gas, electric power and other types of energy, the decline is expected to continue at a rate of around 2% per year.

“Meanwhile, overseas, demand for petroleum and petrochemical products is increasing in China, India and other Asian countries; however, there are already large-scale plants in Korea and elsewhere, and the construction of new or additional, highly cost-competitive plants is anticipated in developing countries as well.

“For these reasons, international competition in the Asian market, including Japan, is expected to increase dramatically.”

The deal follows signing of memorandum of understanding (MoU) in December 2015 by the two companies regarding the business integration.

The business integration, however, is subject to approvals by shareholders on 21 December 2016.

The new entity is expected to control over half of gasoline sales in the country, reported Reuters.

Image: JX and TonenGeneral will integrate operations of a refinery and chemical plants in Tokyo. Photo: courtesy of supakitmod/ FreeDigitalPhotos.net.