Sega acquires toy giant Bandai

TOKYO, Jan. 24 1997 (UPI) _ Japanese video-game maker Sega Enterprises Ltd. agreed to acquire Japan's largest toy company Bandai Co. in a deal worth approximately 129 billion yen ($1.09 billion) in Sega stock, reports said Friday.

Sega, known primarily for its home video-game systems and software, and Bandai, famous for its Mighty Morphin Power Rangers, will form Sega Bandai Ltd. in a merger planned for Oct. 1.

The new company will be involved in computer games and graphics, virtual reality, character merchandising, movies and music, the Wall Street Journal said.

Sega Bandai Ltd. plans to become a global entertainment company second only Walt Disney Co., according to remarks by Sega President Hayao Nakamay in the Journal.

Revenue for the company is forecasted at 600 billion yen ($5.1 billion), with the biggest opportunity for increased sales in the character merchandising arena.

Both Sega and Bandai have experienced recent financial difficulties. Sega, after success with its 16 and 32-bit game systems, has seen its Saturn system outsold by Sony Corp.'s Playstation and faces tough competition from the new Nintendo 64.

Bandai has been suffering since the popularity of its Power Rangers line began to wane.

Sega, Bandai Say They'll Merge Oct. 1

New Media News
24 May 1997

Bandai Says It Plans to Sign
Sega Merger Pact on Schedule

Wall Street Journal Interactive Edition
27 May 1997

TOKYO -- Bandai Co. said it still plans to sign a merger agreement with Sega Enterprises Ltd. on schedule, despite Japanese media reports suggesting that the signing could be delayed.

Mikio Ishigami, a senior managing director of Bandai, said at a news conference that the Japanese company will hold a special meeting of managing directors this Wednesday to "reaffirm" the plan to merge.

He conceded that roughly 80% of the company's middle managers had expressed concern about changes in the company's culture and working conditions that would occur as a result of the merger. But he said a detailed study of how to conduct the merger, originally announced in January and scheduled for Oct. 1, was progressing smoothly. "Our plan to reaffirm the merger will go ahead on May 28," Mr. Ishigami said.

Local media reports said the signing of the merger agreement could be delayed because of the dissatisfaction among Bandai managers.

However, a Bandai spokesman said that the company had talked to Sega and agreed that the signing would occur as scheduled after Bandai's board approved it on May 28. The signing is expected to take place in mid-July, he said.

A Sega spokesman said his company hadn't heard of any plan to change the merger schedule.

Bandai will invite several of its middle managers to attend the May 28 board meeting as observers, aiming to alleviate concerns about the merger plan, the Bandai spokesman said.

Bandai had originally planned to have its board approve the merger on May 22, but postponed it until May 28 after consulting with Sega Enterprises and following a May 1 board meeting.

"We will make a decision on the merger as planned on May 28," Mr. Ishigami said, adding that the company had compiled enough materials to ensure that a sound management decision could be made at that time.

The Tokyo Stock Exchange, after hearing of the change in schedule for May's board meeting, issued several warnings via telephone to Bandai, the Bandai spokesman acknowledged, adding that no official remonstrations have taken place. The exchange has indicated that it should have been informed at an earlier date of the company's decision to postpone board approval until May 28, he said.

Bandai President Makoto Yamashina will announce specific details of the planned merger with Sega on May 28, pending board approval, the spokesman said.

Copyright © 1997 Dow Jones & Company, Inc. 

Corporate Culture Clash Kills
Plans for Bandai-Sega Merger

Wall Street Journal
28 May 1997
By David P. Hamilton

At separate late-night news conferences Tuesday, both Sega President Hayao Nakayama and Bandai President Makoto Yamashina admitted that dissent within Bandai had made it impossible for the two companies to sign the merger agreement. Both executives blamed unspecified "cultural differences" between the two companies for the merger's breakdown; Bandai officials had earlier said that 80% of the company's middle managers had expressed concern about the merger out of fear that Bandai would lose its corporate identity.

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Bandai Swings to Loss for Year; Video Games Lift Sega Profits

Also, the Tokyo Stock Exchange is looking into Bandai's disclosure of information about its decision, an official at the exchange said Wednesday. The bourse is "confirming the situation" surrounding the canceled merger, the official said. He added that the fact Bandai decided May 1 to postpone a board meeting to vote on the merger, but didn't disclose this, might be considered a lack of timely disclosure.

The bourse is also interested in Bandai's announcement on Monday regarding the merger. Although Bandai says it only announced Monday that a vote on whether to approve the merger would take place Wednesday, the local media's understanding was that the merger had already been approved, the official said. The official said the exchange is merely conducting a hearing at this stage, not an investigation with the prospect of any penalties.

Yet, with the failure of the merger, more than a corporate cultural clash appears to have been at fault. Sega's Mr. Nakayama had initially touted a merger that would combine his company's technological prowess in the video-game world with Bandai's skill at marketing characters such as the Mighty Morphin Power Rangers, ultimately with the aim of building an entertainment giant that could rival U.S. companies such as the Walt Disney Co. Tuesday night, however, Bandai's Mr. Yamashina admitted that Bandai had run into trouble identifying exactly which synergies would have resulted from the tie-up, making it more difficult to persuade critics of the merger's value.

'A Feeling of Guilt'

Although Sega and Bandai both said they still intend to work together in product merchandising and development, Sega's Mr. Nakayama didn't hesitate to take a few shots at Bandai's leadership. At one point, he said that Bandai's middle managers apparently opposed the merger because "only the drawbacks were communicated to them." Later, he argued that Sega will find it easy to work with Bandai in the future because the other company will have "a feeling of guilt" for calling off the deal.

The merger, which was valued at 129 billion yen ($1.11 billion) in Sega stock, has appeared shaky for some time. Nearly two months ago, Bandai's Mr. Yamashina told a Japanese newspaper that the merger might be delayed beyond its scheduled Oct. 1 launch while the two sides hashed out a clear business plan for the combined business. In early May, Bandai postponed its official approval of the merger by a week, a move that provoked a wave of Japanese press stories suggesting that the merger would face more serious delays.

The official momentum toward merger remained strong, however, leading a Bandai executive to insist at a press conference Monday that the company's board of directors would approve the merger agreement at a meeting that had been slated for Wednesday. But Bandai's effort to mollify its middle managers by inviting them to that board meeting apparently failed to quell their opposition.

Little in Common

Many analysts had criticized the merger when it was announced last January, arguing that the two companies had little in common besides slumping earnings and an interest in the entertainment industry. Indeed, Sega is a hard-charging, entrepreneurial company that started life as an American firm serving U.S. occupation forces in Japan, while Bandai is run along more traditional Japanese lines.

Bandai's dissidents may also have been bolstered recently by the fact that the company has developed a hit toy -- the "Tamagotchi," a virtual-pet game in which users raise a baby chick to adulthood. From November through April, Bandai had sold more than five million units of the Tamagotchi in Japan, and has recently started test-marketing the toy in the U.S. and Europe, where the company says it has been received enthusiastically.

The impact of the deal's collapse on the individual companies remains unclear. Some analysts had hoped that the merger would lead Mr. Nakayama to relinquish control of Sega's foundering Sega Saturn home-video game machine, which has generated millions of dollars in losses for the company over the last few years. Now some fear that Mr. Nakayama may continue to invest heavily in that business, which analysts would rather see Sega restructure by dropping the Sega Saturn hardware and focusing on the development of game software.

Copyright © 1997 Dow Jones & Company, Inc.

Bandai's President Steps Down
In Wake of Failed Sega Merger

Wall Street Journal 
29 May 1997

President Makoto Yamashina, son of the company's founder, will resign in June and become chairman, the company said after a board meeting. Mr. Yamashina will be succeeded as president by Takashi Mogi, who is currently president of subsidiary Bandai Visual and has worked for the Bandai group since 1973.

Six other directors will resign as well as two auditors, Bandai said. All of the directors will become officials in other Bandai group companies, while the two auditors will retire from Bandai, the company said.

At a press conference Thursday, Mr. Yamashina, looking considerably more relaxed than at a late night briefing held Tuesday to announce the merger's cancellation, said the reshuffle wasn't directly related to the embarrassing cancellation, which prompted widespread criticism of Bandai management in the local media and a plunge in the company's share price.

He said it was part of a personnel reshuffle that the company implements every two years, and that his resignation was also related to the fact that he had been president for 17 years. However, Mr. Yamashina said on Tuesday that he wasn't thinking of resigning.

In Tokyo trading Thursday, Bandai shares tumbled 100 yen to 2,570 yen after the toy maker announced Mr. Yamashina's resignation. Bandai shares fell 90 yen Wednesday and 30 yen Tuesday, combining for an overall drop of 220 yen, or 7.9%, from Monday's closing price of 2,790 yen.

At the Thursday press conference, Mr. Mogi said the company's financial management style couldn't be exactly the same, without elaborating.

Wednesday, the company posted a group net loss of 7.98 billion yen in the fiscal year ended March 31, compared with a net profit of 10.36 billion yen the prior year.

Mr. Mogi also indicated an interest in expanding the business of the company's popular screen-based virtual pet toy, Tamagotchi. But he gave few details on how he would manage the company and it was unclear how operational responsibilities would be divided with Mr. Yamashina.

The personnel changes, which involve appointing seven new directors, including Mr. Mogi, and two new auditors, will be formalized at a board meeting after a shareholders' meeting June 27.

The merger has appeared shaky for some time. The merger was delayed earlier in the year.

Many analysts had criticized the merger when it was announced in January, arguing that the two companies had little in common besides slumping earnings and an interest in the entertainment industry.

Bandai's dissidents also may have been bolstered recently by the fact that since the merger was announced, Bandai has developed Tamagotchi, a strong seller.

Copyright © 1997 Dow Jones & Company, Inc.

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