Sega Corp scraps merger

Sega Corp, Japan's biggest maker of arcade video games, and pinball machine maker Sammy Corp abandoned their planned merger after failing to agree on management control and strategy.

Sega Hideki Sato said he was considering other options, including a merger with rival Namco Ltd, which would be worth Japanese Yen 122 billion (US$1 billion) based on Sega's market value.

Sega reported net income of about Japanese Yen 3 billion (US$26 million) for the year ended March 31, six times its earlier forecast and up from a loss the year earlier.

Sega's slumped after it ditched its video-game hardware business two years ago to concentrate on software, leaving it with Japanese Yen 80 billion in debt. The rebound in profits may give it more time to select a partner, analysts said. Sato wouldn't comment on a February report in the Asian Wall Street Journal that Microsoft Corp and Electronic Arts Inc may bid.

Sega still considering the offer from Namco, Japan's second-biggest maker of arcade video games, which some analysts believe may be a better fit.

Sega potential for a comeback," with the right partner, said Arvind Bhatia, a video game analyst at SWS Securities Inc in Dallas, Texas, who doesn't have a rating for Sega.

"Namco would be a better fit in the long-run" so the end of the Sammy discussions may be positive for Sega, he said.

Sato at a press conference to say whether the company is in talks with anyone besides Namco.

Sato last week Sega should be able to finish an audit of Sammy's financial records ahead of today's deadline set by Namco for a reply to its interest in merging with Sega.