NEWS - Thursday, April 17, 2003

Namco Bidding for Sega

Rival Game Maker Decides to Join the Bidding for Sega TOKYO, April 17 — A new bidder emerged today for the Sega Corporation, Japan’s biggest maker of arcade games, prompting investors to drive Sega’s share price up sharply. Namco, a direct competitor, said today that it was in talks with Sega over a merger that would bring two of Japan’s best-known arcade characters, Pac-Man and Sonic the Hedgehog, under one roof. Sega had been in talks with the Sammy Corporation, a leading maker of machines for playing pachinko, a popular Japanese form of pinball. Investors seemed to view a combination with Namco as a better bet for Sega, which has taken a beating in the home game console market at the hands of Sony and Nintendo but remains a force in arcade games, a 350 billion yen ($2.9 billion) market in Japan. Sega’s stock shot up by the Tokyo Stock Exchange’s daily limit today, closing almost 16 percent higher at 736 yen ($6.15) a share. The two companies "are going to stand out in terms of market share," said Yorinobu Hara of Resona Asset Management, which holds Sega shares. "Still, there are a lot of overlapping businesses between the two, so we have yet to see how they would resolve that problem." Together, Sega and Namco would have sales exceeding those of Konami, the maker of Yu-Gi-Oh game cards, and would be the largest maker of game cartridges for other companies’ video game consoles and the second-largest game maker over all, behind Nintendo. "We’ve been in talks since last year about expanding our relationship, including a merger," said Shin Hasuya, a spokesman for Namco. Sega’s announcement in February that it would merge with Sammy came during a suspension of talks with Namco, Mr. Hasuya said. Investors also bid up Namco’s shares by 1.3 percent in Tokyo trading, which was suspended for part of the day because news of the talks had reached a newspaper ahead of the announcement. Sammy’s shares rose as well, by 5 percent. The $20 billion video game industry is in the midst of a broad consolidation, and investors have been watching to see if two other important players, Electronic Arts and Microsoft, the maker of the Xbox console, will bid for Sega. "More offers would mean more options for Sega to pick the best deal," said Teruhisa Ishikawa, a manager at Izumi Securities. But a spokesman for Sammy, Tetsuya Hasegawa, said that the company was going ahead with its plans to merge with Sega, and that it expected the two to sign formal merger documents in May. Sega has been struggling with debt, much of it run up to finance development of the Dreamcast game console, which the company scrapped in March 2001 after disappointing sales. Namco sees potential in its international sales, distribution and maintenance network and in the company’s large number of valuable patents and trademarks, analysts said. "Sega is expected to have more synergy with us" than with Sammy, Namco’s managing director, Keiji Tanaka, said in an interview. He declined to provide details. Besides being the two leading makers of arcade machines in Japan, Sega and Namco each operate nationwide chains of arcades. Both have been closing low-traffic locations in rural areas in recent years in favor of busy shopping malls; each has also experimented with adding features like Internet capabilities to their game machines.


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