I think it's ridiculous. It's something cooked up by investors or maybe even Sega themselves to get the stock price back up.
Microsoft has asked at least one U.S. investment bank to investigate ways it potentially could buy all or part of Sega, say people familiar with the situation.
Microsoft, Electronic Arts
Study Bid for Japan's Sega
By ROBERT A. GUTH and JASON SINGER
Staff Reporters of THE WALL STREET JOURNAL
Sega Corp., grappling with a plan to merge with a pinball-machine company, now has two huge potential suitors mulling their own bids for the ailing videogame maker: Microsoft Corp. and videogame giant Electronic Arts Inc.
The two U.S. companies are separately exploring the possibility of buying all or parts of Sega, according to people familiar with the situation. These people stressed that the two potential suitors have yet to hold formal talks with Sega, and no deal appears imminent.
Still, either company could emerge as a white knight to grab Sega from a plan to combine with Sammy Corp., the pinball maker, a deal that appears rife with difficulties and internal opposition. Sega, once a leader in the videogame business, has stopped making its own game machines and now creates titles for Microsoft's Xbox, Nintendo Co.'s consoles and Sony Corp.'s market-leading PlayStation 2.
Friday, Sega shares closed 16% higher at ¥740 ($6.29) in Tokyo.
For Microsoft, a deal with Sega could give its 16-month-old Xbox access to exclusive game titles -- analysts say the software giant lacks enough of them to make the Xbox a long-term success. A potential jewel for Microsoft would be Sega's Visual Concepts, a U.S. maker of sports games, one of the most popular and fast-growing game categories.
Acquiring Sega also could give Microsoft a strong boost in Japan, where a dearth of Xbox titles that appeal to Japanese gamers has left Microsoft with a vast stock of unsold machines.
Sega also would give Electronic Arts, of Redwood City, Calif., a boost in Japan, where it has been expanding. And a deal would remove a competitor: Sega's Visual Concepts competes with Electronic Arts in sports games, albeit with modest success.
Microsoft has asked at least one U.S. investment bank to investigate ways it potentially could buy all or part of Sega, say people familiar with the situation. Microsoft approached Sega with an offer to invest in January 2001, only to be rebuffed, Sega and Microsoft executives said last year. Microsoft and Sega executives are expected to hold informal meetings in coming weeks on how to collaborate more closely, say people familiar with the companies.
Electronic Arts, for its part, has approached Japanese game makers about launching a joint bid for Sega, say people familiar with the matter.
Spokespeople at Microsoft and Electronic Arts declined to comment. A Sega spokeswoman said the company hasn't been approached by suitors.
Meanwhile, Sega's financial plight is deepening: As early as Friday, the company is expected to announce a reorganization of its U.S. operations that will involve shedding perhaps 20% of the American work force of 450, according to people familiar with the plan. The cuts, which are expected to focus on sales and marketing positions at Sega of America and at Sega's online unit, are part of a global restructuring that could lead to additional layoffs, one person said.
Sega's situation highlights the broad changes sweeping the $25 billion videogame business, as the cost to develop new games surges and the U.S. market increasingly drives the industry's growth. While Japanese companies such as Sega -- creator of Sonic the Hedgehog -- and Nintendo pioneered the industry, financially stronger and larger players such as Sony, Electronic Arts and Microsoft are becoming more influential.
Sega announced last week that it had agreed to "combine" with Sammy, a highly profitable maker of machines for playing pachinko, a legalized form of gambling in Japan that uses upright pinball machines. The deal talks were largely driven by CSK Corp., a computer-services provider and Sega's largest shareholder, say people familiar with the companies. Few details of the deal were disclosed, other than that Sammy President Hajime Satomi would head the combined companies.
News of the plan, which is widely perceived as a takeover by Sammy of Sega, shocked many Sega employees, who worry that any combination with Sammy is a step into the world of Japanese gambling. The news also rocked Sega's share price, which this week hit some of its lowest levels ever. "The market has already voted its opinion" on the agreement, says Zachary Liggett, an analyst at WestLB Securities Pacific Ltd.
Executives at Sega and Sammy stress that details have yet to be worked out. They say that instead of a merger, they may create a holding company that would house both companies. "The discussions are progressing smoothly," company spokesman Masato Suzuki said, according to The Associated Press.
The fate of Sega is largely in the hands of Masahiro Aozono, president of CSK, which owns 22.4% of Sega. Mr. Aozono would have to agree to any competing plan for Sega's future.
Still, the architects of the Sega-Sammy plan only need look back a few years, when Sega announced a surprise merger with toy giant Bandai Co. Bandai employees petitioned against the merger to their upper management and helped kill the plan.
-- Phred Dvorak contributed to this article.
Write to Robert A. Guth at [email protected]
and Jason Singer at [email protected]
Updated February 28, 2003 9:09 a.m. EST