TOKYO--In a joint statement today, Sega and Sammy announced that they will be "merging operations" in October by becoming subsidiaries of a new holding company, Sega Sammy Holdings. Once merged, Sega and Sammy's combined annual income for the fiscal year 2005 is expected to be at 501 billion yen ($4.4 billion), making it one of the biggest game companies in Japan.

However, according to Bloomberg News, the announcement is actually a takeover of Sega by Sammy. Under the terms of the deal, Sammy, which already owns nearly 25 percent pf Sega, will exchange about 165 billion yen ($1.45 billion) of stock in the new company for Sega's remaining shares.

Each share of Sammy will be swapped for one share of Sega Sammy Holdings, while each share of Sega will be swapped for 0.28 of a share. The deal will give current Sammy shareholders control of nearly three-quarters of the new company's voting stock.

Today's takeover recalls a similar attempt between Sega and Sammy to merge in 2003. Seven months after that deal fell through last May, Sammy bought 22.4 percent of Sega from its biggest shareholder, the CSK corporation. Since then, several high-level, old-guard Sega executives have resigned, and Sammy president Hajime Satomi has become chairman of the publisher's board. Satomi will continue to hold the top position in the new company, sitting as both chairman and president of Sega Sammy Holdings. Sega's current president, Hisao Oguchi, will become vice president of the company.

With Sega's development skills and Sammy's finances as the largest Pachinko slot machine manufacturer in the world, the two companies hope to play a dominant role in all markets of the entertainment industry that the two companies currently have businesses in: console gaming, Pachinko, "Pachislot" (Pachinko/slot machines), amusement, arcade games, and the content services market.

Sammy president Hajime Satomi commented to reporters during press breifings that "Sammy's profits will be larger during [the first] two or three years [after the merger]. But thinking into the future, Pachinko and Pachislot has its limits since it's domestic. Sega will turn out to be greatly more profitable [in the future]."

Satomi also commented that Sega's and Sammy's brand names will still continue to be used after the future reorganization of the two companies. Businesses related to the arcade and consumer gaming sector will continue to run under Sega's name, while the Pachinko- and Pachislot-related businesses will run under Sammy's.

Sammy's and Sega's stocks will be withdrawn from the Tokyo Stock Exchange on September 27, prior to the launch of Sega Sammy Holdings in October 1. While Sega and Sammy will continue to run as separate entities at first, plans have been announced for the two companies to merge and be reorganized into four new divisions by 2007: Pachinko and Pachislot, amusement and consumer games, media content and network, and miscellaneous.

Following the announcements, Sega also revealed that it will be merging its divisions together. Starting July 1, Sega's seven subsidiaries--Sega Wow, Sega AM2, Hitmaker, Sonic Team, Smilebit, Amusement Vision, and Digitalrex--will begin integrating back into Sega.