Japanese gambling giant taking over Sega — again

Wednesday, May 19, 2004 | 11:01 a.m.

BLOOMBERG NEWS

TOKYO -- Sammy Corp., Japan's biggest maker of gambling machines, said it will buy the three quarters of Sega Corp. it doesn't own for about 165 billion yen ($1.45 billion) in stock, resurrecting a takeover that collapsed in May last year.

Sammy President Hajime Satomi will head a new holding company that will buy all shares of Sega, the maker of "Sonic the Hedgehog" video games and Sammy, its biggest shareholder, in October, according to a joint statement. Sammy shareholders will control 72 percent of the new company, which will have combined annual sales of about 501 billion yen this fiscal year.

Sammy in December bought a 22 percent stake in Sega, which lost a combined 191 billion yen in the five years from 1998. Satomi, who took over as chairman of Sega after the stake purchase, told reporters at a Tokyo news conference he wants to cut costs and use Sega to expand Sammy's business, which is largely domestic, overseas.

Satomi "wants to control everything, and this is easier for him," said Masaru Ohnishi, a Tokyo-based analyst for JP Morgan Securities Asia. Satomi may look to cut costs in Sega's research and development, Ohnishi said.

Closer cooperation between the two companies, both based in Tokyo, may help the companies save money, executives have said.

"There's no resource sharing. We haven't decided how to do that," Scott Steinberg, vice president of marketing for Sega of America Inc., said in an interview at the E3 Electronic Entertainment Expo in Los Angeles last week.

Last year, table game maker Shuffle Master Inc. of Las Vegas purchased certain assets from Sega's Las Vegas-based gaming division. Sega said it was exiting a business that wasn't profitable. Shuffle Master has plans to tweak and distribute some of Sega's games -- which are electronic table games that function without dealers -- nationwide.

Sega shareholders will receive 0.28 share of the holding company for each Sega shares. Sammy shareholders will receive one of the new company's shares for each Sammy share, the statement said. Sammy has 87.5 million shares outstanding and controls 22.4 percent of Sega stock. Sega has 174.95 million shares outstanding.

Morgan Stanley and Daiwa Securities SMBC Co. advised on the transaction.

Sega's full-year net income more than doubled to 8.8 billion yen during the year ended March 31, from 3.1 billion yen a year earlier, helped by demand for arcade game machines, the company said in a statement filed through the Tokyo Stock Exchange.

Sega expects net income for the year ending March 31, 2005, to fall 8.7 percent to 8 billion yen, while sales will rise 6.7 percent to 204 billion yen.

The operating loss at Sega from games played on consoles such as Sony Corp.'s PlayStation 2 and Nintendo Co.'s GameCube narrowed to 2.8 billion yen during the year ended March 31 from 8.6 billion a year earlier.

Spending on games in Japan dropped 5 percent in 2003 to 302 billion yen, according to a report by Tokyo-based market researcher Enterbrain Inc.

Sammy on Tuesday reported that net income for the year ended March 31 rose 40 percent to 32.2 billion yen on sales that gained 52 percent to 251 billion yen. Sammy sees net income rising 12 percent to 36 billion yen this year on sales of 297 billion yen.