Sega, Bandai Merger Canceled

Two of the largest Japanese entertainment powerhouses, Sega Enterprises Ltd. and Bandai Co. Ltd., announced last night in Tokyo that they were canceling plans to merge. The move came rather unexpectedly, since a Bandai spokesperson had just a week ago announced that the two companies were prepared to sign a merger agreement tomorrow. As recently as Monday in Japan, a Bandai executive called a news conference saying that he expected the agreement to be signed, calling off an earlier plan that would have seen the signing of the agreement postponed until July.

Nonetheless, Bandai called off the merger between the two companies, stating that there were cultural differences between them and that the benefits of the merger were unclear. At the same time, it said that instead of merging, it plans to work with Sega in the future. However, no details of that business alliance have been released at this time.

"Although we can't merge, we'd like to maintain the spirit and purpose of our agreement," Sega President Hayao Nakayama reportedly said, adding that the cancelation wouldn't change the company's long-term plans.

Reports in the Japanese press point to mid-level management at Bandai being opposed the merger, and employees at the toy maker becoming nervous about the environment after the two companies becoming one.

Tokyo analysts were divided over the cancelation. Most agreed that the news would have a negative effect on the two companies. However, they were divided over which had more to lose. Both companies reportedly have seen lower earnings and profits in the last year. Speculation among the Japanese business community was that even if the merger went through, profitability would be long in coming.

On the US side of things, not much changes. Bandai America and Sega of America would have had separate operations even under the merger plan. Dan Stevens, Sega of America's manager of corporate communications, commented that "It's still a good deal to work together to utilize each company's strengths. We stay happy, they stay happy, and we still get to work together."

Bandai recently has experienced great success with its Tamagotchi, a product which has taken hold not only in Japan (where it is a full-blown craze), but in the US as well. On the other hand, Sega has experienced a downturn in its share of the home video game market due to less than brisk sales of the Saturn.

When asked whether this would obstruct the future of the two companies working together, Nakayama reportedly said, "It will make it easier for us, since they will feel a little guilty."

Tomorrow both companies will announce their earnings for the previous fiscal year, which will provide additional insight on the state of the two companies.