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Bandai and Sega band together

The Power Rangers and Sonic the Hedgehog are getting hitched. Industry analysts look on approvingly.

The Power Rangers and Sonic the Hedgehog are getting hitched.

Sega Enterprises today said it will merge with Bandai in a $1.08 billion stock-swap deal, creating a global interactive entertainment giant.

"The idea is to become the largest entertainment company from toys to theme parks to video games and music. We want to run the whole gamut," said Lee McEnany, a Sega spokeswoman. "This merger will give us more leverage and power."

Under the agreement, the combined Japanese companies will be called Sega Bandai Limited and will be based in Sega's Tokyo headquarters. The deal is expected to close October 1.

The merger will create a combined company worth $5.6 billion; Sega will contribute $3.6 billion and Bandai will add $2 billion, according to the companies' September 30 financials.

Sega's digital content, virtual reality, and computer graphics will be melded with Bandai's experience in character development--from Power Rangers to the Ninja Turtles, merchandising, and visual-music technologies.

Analysts said the merger will prove a good move for the companies.

"I think the merger was motivated from both ends. Sega and Bandai are both looking at a period of instability," said John Taylor, an analyst with Arcadia Investment in Portland, Oregon.

He added that Bandai was likely looking to merge with a company that carried a strong brand name associated with consumer electronics and interactive hardware.

"Bandai will get one of the great entertainment software development houses in the world with Sega's arcade development capabilities," Taylor said.

Meanwhile, Sega will probably benefit from Bandai's hardware capabilities.

"Sega is looking for strategic alternatives for hardware. Their strength is in software development," he said. They're doing OK with their arcade operations, but their video arcade games and home divisions like the Saturn game consoles have been soft all year long."

And the deal may serve as an entry for Sega to get access to Macintosh technology.

Sega may try to find ways to maximize results from the Macintosh-based Net-surfing Pippen device, which has been sluggish for Bandai, he said.

"Sega has been pursuing an Internet strategy," Taylor noted.

"Interactive entertainment has been tough," Sega's McEnany said, but she discounted talk that the merger was done because the companies were encountering tough times for their products. "Sega Saturn software and hardware met all their [sales goals] during the holidays."

Bandai, which earlier delayed delivery of its Pippin@World Internet device that lets consumers surf the Net on a TV, was hit with disappointing sales during the holidays. The company faced stiff competition from Sanyo Electronics, Samsung Electronics, and Philips.

Bandai shareholders will receive 0.76 shares of Sega Bandai stock for every Bandai share. And Sega shareholders will get a one-for-one swap with the new company.

Isao Okawa, chairman and representative director to Sega, will retain his title with the new company, as will Hayao Nakayama, who currently is chief executive and vice president to Sega. Makoto Yamashina, Bandai chief executive and president, will become president and chief operating officer of the new company.