Tecmo, Koei in merger talks

Last week, Square Enix sent waves through the game industry by announcing a "friendly" offer to buy Tecmo for around $200 million. The unsolicited bid would've added the action games of the troubled latter, which includes the Ninja Gaiden and Dead or Alive series, to the massive role-playing portfolio of the former, which features the Final Fantasy and Dragon Quest series.

While Square Enix's offer put a generous 30 percent premium on Tecmo's stock, it also had a firm deadline of Thursday, September 4. Today, Tecmo president Yasuharu Kakihara rejected it outright, according to the Reuters news service. Instead, the publisher announced is in talks to merge with another Japanese game label, Dynasty Warriors-maker Koei.

"Through a merger, we expect we can grow further by respecting both companies' identities and having an environment in which employees can fully exhibit their skills," the two companies said in a joint statement. Kakihara also said he would not consider another offer by Square Enix, which is considering its next move.

Tecmo shares rose 7.5 percent to ¥937 (around $8.70) on news of the merger, with Koei's stock climbing 0.3 percent to ¥1,552 ($14.41) and Square Enix stock sliding 1.9 percent to ¥3,550 ($32.96). Trading of both Tecmo and Koei shares were halted by the Tokyo Stock Exchange before the closing bell.

Financial details on the Tecmo-Koei merger remained unclear as of press time. However, even a union of the two companies would be around 30 percent the size of Square Enix, with just ¥40 billion ($371 million) in sales. It would also mark the latest round of consolidation in the Japanese game industry, which saw the formation of Namco Bandai in 2005, Sega Sammy in 2004, and Square Enix in 2003.