Sega's choice of partner to rely heavily on shareholder CSK
The Asahi Shimbun
As Sega Corp. mulls which of two companies to forge a business alliance with, analysts say the key to a final decision may ultimately rest with the firm's top shareholder, CSK Corp.
Officials at both Sega and CSK have said that they will choose a partner based on which company is better able to maximize the value of Sega's businesses.
After announcing a plan to integrate its operations with pachinko and slot machine maker Sammy Corp. in February, Sega then said on April 17 that it was also considering a merger with game software maker Namco Ltd.
Sega President Hideki Sato said in late April that the company would decide which firm to ally with by early May, to gain shareholder approval in June.
Information services company CSK, which owns a 22 percent stake in Sega, played the role of middleman in the proposed partnership deal between the struggling game maker and Sammy.
CSK had hoped that Sammy would help Sega improve its weak financial standing.
After withdrawing from the home video game hardware business two years ago, Sega recorded dismal sales of its software in the United States in fiscal 2002, leaving the firm's turnaround plan in tatters.
But despite its faltering business results, Sega's brand name, which is known the world over for its former success in the video game market, still appeals to potential partners.
As a major shareholder, CSK suffered 68.6 billion yen in appraisal losses in its fiscal 2002 accounts settlement due to Sega's stagnating stocks.
Sammy President Hajime Satomi was a close friend of the late Isao Okawa, CSK founder and former Sega chairman and president. For that reason, Satomi used to emphasize that Sega and Sammy were just like relatives.
But when Sega officials announced last month they were considering a partnership proposal from Namco, Sammy officials were furious.
The presidents of Sega and Sammy had agreed on their partnership and shaken hands on the deal in February.
According to sources close to the companies, Sato met with Satomi shortly after Namco proposed a merger on April 14.
When Sato told Satomi about the offer from a third party, it took him completely by surprise.
``(Sega) has betrayed and embarrassed us,'' a senior Sammy executive said. ``We don't really care (if the deal goes through or not) anymore.''
Yet warning signs the partnership could fall through were evident even before Namco's merger plan came to light.
In early March, it was revealed that Sega had received a partnership offer from Electronic Arts Inc., the largest game software maker in the United States.
At the time, Sammy officials repeatedly said there would be no change in their planned integration with Sega.
On the contrary, the plan has largely been put on hold. Sega and Sammy initially planned to work out integration details at the end of March and sign an official agreement in late May.
Sega President Sato blames the delay primarily on the differences in operations between the two firms, with particular regard to the markets they work in and specific business practices.
Such differences, Sato says, have delayed the process of evaluating the assets held by the two firms.
While both Sega and Sammy operate under the law regulating entertainment businesses, the provisions that apply to the two firms differ due to differences in their mainstay operations. While Sega's main businesses are video arcade games and home-use video game software, Sammy's bread and butter is producing pachinko and slot machines.
Namco claims that Sega needs a partner with similar operations. The company has demanded that a merger take place on Oct. 1, the same date Sammy wants to integrate its operations with Sega.
``We have to do something, or Sega will go under,'' a Namco official said. ``Namco is Sega's best partner because we are in the same industry.''
The company has been in talks with Sega since last year, and integration of operations was on the agenda from the start. Sega, however, told Namco it would put an end to negotiations just prior to it announcing its integration plan with Sammy in February.
``At that time, we didn't know what was going on. But Sega has apparently come back to the negotiation table after seeing its stocks fall,'' a senior Namco executive said. ``We are serious about this and we wouldn't even mind Sega acquiring us.''(IHT/Asahi: May 1,2003)
