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Major Japanese software companies Square Co. Ltd. and Enix Co. have announced today of their decision to merge Companies on April 1st of 2003. The new comapny name has been announced as "Square Enix".
Square will be desolving and merging into Enix, with Enix trading 0.81 stock to each Square stock. Enix CEO Fukushima and associates will invest approximately 30% to the new company's capital, with Square's top shareholder Masashi Miyamoto leading behind at 18 % and Square's second top shareholder SCE at 8%.
Development structures for both companies are not scheduled to be changed at the current time, and no employees are planned to be laid off due to the merge (Current number of employees: Square 891, Enix 140.). Software developments announced by both companies prior to the merge decision will be developed as scheduled.
It is still not clear what kind of new software will be produced with the merger of Square and Enix. However, No combined Final Fantasy and Dragon Quest(Warrior) title is currently planned for development since both series have distinct differences to each other.
More details on the corporate strategies for the new company will be revealed at the analysts meeting on 11/29 in Tokyo.
(Reuters, Quoted) -- "TOKYO, Nov 26 (Reuters) - Japanese game software makers Enix Corp 9684.T , known for its blockbuster "Dragon Quest" series, and Square Co Ltd 9620.T , maker of "Final Fantasy", said on Tuesday they would merge to help fight off intense competition.
Enix and Square said the deal would be worth about 89 billion yen ($727 million) based on Enix's pre-announcement share price.
The pact comes as Japanese video game software makers are facing rising development costs to create games for advanced systems such as Sony Corp's 6758.T PlayStation 2 and Microsoft Corp's MSFT.O Xbox in a heavily saturated market.
"We're going on the offensive with this merger. This will make our strengths complement each other," said Square President Yoichi Wada, who will become president of the new firm.
Wada told reporters that Square had a leading position in the online game market as well as strong name recognition in Europe and North America, while Enix had been successfully operating network games for personal computers in Asia.
The stock market gave the deal a high score, but analysts had mixed views. Enix shares, which stood at 1,821 yen by midday, shot up by their daily limit of 300 yen or 16.0 percent to 2,175 yen, while Square shares rose 6.42 percent to close at 2,005 yen.
"The merger is seen as a positive move for both companies as it will provide ample funds to cash-strapped Square while helping to smooth wide earnings swings at Enix, which depends solely on Dragon Quest sales," said Takeshi Tajima, analyst at BNP Paribas.
STABLE EARNINGS
Enix is known for stable earnings. It has never posted a loss since it became a listed company in 1991 and its cash reserves stood at 38 billion yen ($311 million) as of September.
But Takashi Oya, at Deutsche Securities, described the deal as a "virtual" merger and expressed doubts about the benefits.
"Enix outsources game development and has few in-house creators, while Square does everything by itself. The combination of the two provides no negative factors but would bring little in the way of operational synergies," he said.
Under the deal, one Square share will be exchanged for 0.81 share in Enix, which will be the surviving entity. Enix will issue 48.76 million new shares to swap for shares in Square.
Deutsche's Oya said the deal would create a company with a sizable market capitalisation, making it more attractive to investors. The combined companies have a market capitalisation of about 223 billion yen ($1.8 billion) at Monday's share prices.
Nintendo Co Ltd 7974.OS , with a market capitalisation of 1.8 trillion yen, is the biggest gamemaker listed in Tokyo.
Enix and Square both enjoy solid sales from their million-seller game series but their dependence on big hit games also makes profits vulnerable to sudden shifts in demand.
"Enix has a strong eanings record and our profits are quickly recovering," Wada said. "We will keep high profits in the next few years and will step up development of innovative games."
The new firm, Square Enix, is aiming for an operating profit of 18.5 billion yen on sales of 61 billion in 2003/04 to March and 27 billion yen profit on 80 billion yen sales in 2004/05.
Square, which lost 16.6 billion yen last year after an unsuccessful foray into movie making, received a 14.9 billion yen funds injection from Sony last year to strengthen its capital and financial footing."
For the full article by Reuters, check the site.
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