UPDATE 2-Sega to merge with Sammy, slashes 02/03 forecast
Thu February 13, 2003 04:20 AM ET
(recasts with company and analyst comments, details)
By Daniel Hauck and Yuka Obayashi
TOKYO, Feb 13 (Reuters) - Japan's Sega Corp 7964.T , suffering after sports
video games flopped in the U.S., said on Thursday it would merge with
'pachinko' game machine maker Sammy Corp 6426.T and cut its 2002/03 profit
forecast by 90 percent.
The merger, scheduled for October, will bring together Sega, Japan's largest
game arcade operator and creator of videogame character Sonic the Hedgehog,
with Sammy, Japan's largest maker of pachinko pinball-style machines.
It will create a firm with a combined market value of $2.4 billion, with
Sega accounting for around 54 percent.
"By combining both companies' technological and developmental abilities,
Sammy's high growth power and Sega's global brand power, we will be
able...to address the needs of a large range of global customers spanning a
wide age range," the two firms said in a statement.
After pulling out of the game console business in 2001, Sega has been
struggling in its efforts to become the leading global game publisher,
pulled down by its performance in North America.
The new firm will be headed by Sammy President Hajime Satomi, who told a
news conference the two firms were leaning towards an outright merger, with
a decision possible as early as March.
Analysts said the move was not surprising, given the recent fortunes of the
two firms.
"Pachinko makers are generally flush with funds and want to expand their
business, so it makes sense for them to tie up with a company like Sega,
which is having difficulty in boosting profits," said UFJ Tsubasa Securities
analyst Takashi Oka.
Garish pachinko parlours are ubiquitous in Japan, filled with devotees
transfixed by the beeps and clangs as tiny metal balls whirl around the
upright pinball machines.
SEGA FORECAST SLASHED
Highlighting its problems, Sega slashed its group net profit forecast for
the year to March to 500 million yen ($4.12 million) from a previous
forecast of five billion, due largely to poor U.S. sales of "Sega Sports NFL
2K3", an American football simulation game released in August.
Sega conceded victory to its U.S. rival, Electronic Arts Inc ERTS.O , and
its American football game "Madden NFL 2003".
Sales of another sports game, "NBA2K3", recently launched in the United
States were also lower than its original estimate.
"The downward revision isn't a surprise since its difficulty with game sales
in the United States had been well known," said UFJ Tsubasa's Oka.
The Tokyo-based company has been shifting its focus to software development
in consumer games since pulling the plug on its loss-making Dreamcast game
console early in 2001 in the face of stiff competition.
Sega said it had decided to postpone the domestic launch of two major game
titles for Sony's PlayStation 2 console -- originally planned in March -- to
some time after April, which would also drag down its earnings for this
business year.
The game giant said its group net profit totalled 3.98 billion yen in the
nine months through December on sales of 150.7 billion yen.
Sega's weak earnings contrasted with a solid nine-year performance reported
earlier by rival Konami Corp 9766.T .
Konami said its group net profit totalled 12.74 billion yen in the nine
months through December, helped by robust U.S. demand for its popular
"Yu-Gi-Oh!" card game.
That surpassed the company's profit estimate of 11.5 billion yen for the
full-year through March, which was made in November.
Sega's announcements came after the close of share trading. Its shares ended
up 1.81 percent at 901 yen, while Sammy closed up 1.86 percent at 2,470 yen.
The Nikkei average .N225 was down 0.74 percent.
($1=121.43 yen)
http://reuters.com/financeNewsArticle.jhtml?type=mergersNews&storyID=2221117
