Bandai to Buy Namco for $1.7 Billion in Cash
May 2 (Bloomberg) -- Bandai Co., creator of ``The Power Rangers,'' agreed to buy ``Pac-Man'' designer Namco Ltd. for about 175.3 billion yen ($1.7 billion) in cash and stock to create Japan's second-biggest maker of toys and video-game software.
Bandai purchased 6.3 percent of Namco for 10.5 billion yen in cash, according to a joint statement released today. Namco shareholders will then receive 1 share each in a new combined company per Namco share, valuing their stock at 1,597.5 yen a share, about 14 percent higher than April 28's close.
The merged company will have more funds to develop video games for the $20 billion global market, matching increased spending by larger rival Sega Sammy Holdings Inc., formed in a merger seven months ago, and U.S. companies such as Microsoft Corp. A wider range of characters will also help the new company spur sales of toys, arcade games and cell-phone downloads.
``It's positive because they can complement each other's weakness,'' said Ryoji Nagaoka, an equity strategist at SMBC Friend Securities Co. ``Bandai has abundant characters but is behind in terms of technology. Namco has graphic technology to develop games for game centers but has no outstanding characters apart from Pac-Man.''
The Tokyo-based companies will combine Sept. 29 under the name Namco Bandai Holdings Inc., which will be led by Bandai President Takeo Takasu and Namco Vice Chairman Kyushiro Takagi. Bandai also owns characters such as ``Digimon'' and ``Mobile Suit Gundam.'' Namco makes the ``Tekken'' martial arts fighting series.
Cost Savings
The companies expect to counter rising development costs through their merger, Bandai's Takasu said today at a news conference in Tokyo. The new company doesn't plan to cut jobs -- Namco had 2,413 employees at the end of September, and Bandai had 979 employees, according to today's statement.
``We are still assessing how much we can save, but we are not thinking about eliminating any jobs,'' he said. ``Both companies have unique strengths that don't overlap and there will be a high synergy effect coming from this merger.''
Namco Bandai will be split into three main business groups over the next three years -- toys and hobbies, content, and amusement -- and targets sales of 550 billion yen in the period, he said. That compares with a combined estimate of 458 billion yen for the two companies in the year ended March 31.
Bandai will help turn Namco's characters into toys, and will use Namco's network of nationwide arcade centers and stores to sell its characters, Takasu said. The two companies will also co- develop game software.
`Merging to Survive'
Namco shares closed 8.9 percent higher at 1,531 yen, the biggest gain since November 2003. Bandai fell 2.5 percent to 2,335 yen. The companies' shares were suspended for the first one and a half hours of trading, following an earlier report of the merger plan by the Nihon Keizai newspaper. The new company will pay an annual dividend of 24 yen a share with a payout ratio of 30 percent, the statement said.
Bandai gets more than half of its sales from plastic models, trading cards, and other toys and hobby products, and about a fifth of revenue from video games software and stand-up video games consoles used in arcades.
Namco, which competes with Sega in Japan's amusement center market, gets more than 60 percent of its revenue from arcade machines and running its own game centers. Sales of video game software, which it makes for consoles developed by Nintendo Co., Sony Corp. and Microsoft, account for about a quarter of sales.
``Merging is one way of surviving in an industry that is very much nearing maturity, especially in Japan where the birth rate is low,'' said Yuuki Sakurai, who helps manage the equivalent of $4.7 billion of Japanese equities at Fukoku Mutual Life Insurance Co. ``It's unclear whether this merger will remain positive for the companies in the medium to long-term'' because of the ``difficult'' business environment.
Failed Mergers
Past merger attempts in the industry have failed. Sega and Bandai scrapped a plan to combine in 1997, citing differences in corporate cultures and product lines, while Namco pulled out of a merger proposal with Sega in May 2003.
Today's merger is pending approval by shareholders at Bandai's June 23 meeting and Namco's June 25 meeting. The two companies are expected to delist from the Tokyo Stock Exchange on Sept. 22. Namco's adviser in the merger was Nomura Securities Co. and Bandai appointed Daiwa Securities SMBC Co.
Revenue at 17 global video game publishers fell 3 percent from a year earlier to $24.5 billion in fiscal 2004, DFC Intelligence, a San Diego-based market researcher, said on its Web site. Sony, Nintendo, Electronic Arts Inc. and Microsoft were the top four game software makers, DFC Intelligence said.
The cost for making video games is rising, as faster chips and high-definition graphics require developers to add more detail. Making a video game ``is getting to be more and more like making a movie,'' Microsoft's J Allard, a corporate vice president who helps run the company's Xbox unit, said in an interview in January.
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