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Sammy to Acquire Sega in $1.4 Billion Deal
Japan's biggest maker of slot machines, Sammy Corp, said today it would pay a 21 percent premium to acquire video game developer Sega Corp in a stock deal worth $1.4 billion. The acquisition, which follows an unsuccessful attempt last year, will allow Sammy to use Sega's strong brand and library of hit games, such as the popular "Sonic" series, to boost its presence in the arcade and consumer video game market. "When they talked about a merger this time last year, it was taken very negatively, and I haven't seen anything in the last year for the market to change their impression of that," said Hiroshi Kamide, analyst at KBC Securities. The holding company would create an entertainment giant with combined annual sales of more than 440 billion yen ($3.84 billion), combining Sammy's slot machine and pachinko - a pinball-like game - operations with Sega's software business. "Over the long haul, there is a limit on the business from pachinko and slot machines since they are domestic businesses, and we see Sega earning more profit than Sammy in the future," said Sammy Chief Executive Hajime Satomi at a news conference. The two companies said they would create a new holding company, Sega Sammy Holdings Inc, of which Sammy holders will have a 72 percent stake. Each share of Sammy will be swapped for one share of the holding company, while each share of Sega will be swapped for 0.28 share. Goldman Sachs analyst Ken Uryu said in a research note dated May 18 that the merger could have a negative impact on Sega's share price, due in part to the low swap ratio. The merger is pending approval from two-thirds of Sammy and Sega's shareholders.
The two companies aim to close the deal on October 1, with Satomi - who owns 27.6 percent of Sammy's outstanding shares - heading the new company. The two firms' respective stocks will be withdrawn from the Tokyo Stock Exchange on September 27. The news follows Satomi's appointment as Sega chairman in February after Sammy acquired shares last December. Merger talks between the two companies broke down last year due to disagreements over management style and other terms of the integration. Satomi told Reuters in March that he was targeting a profit of $1 billion between Sammy and Sega in the 2005/06 business year. He said on Tuesday that Sammy Sega could one day generate one trillion yen in revenues, but declined to give a timeframe. Sega on Tuesday afternoon reported an annual net profit that nearly tripled on the back of strong performances by its arcade business but it forecast lower earnings this year, due in part to the merger. Sammy earlier on Tuesday reported a 40 percent increase in annual net profit on a 52 percent rise in sales. It forecast net profit would rise in the current business year. ($1=114.45 yen)
SOURCE: Reuters.
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