Square Enix Bids For Taito

Shares of Space Invaders maker Taito shoot up after $610-million bid by Final Fantasy developer Square Enix.August 23, 2005
Game software developer Square Enix said it plans to acquire Japanese video game maker Taito for ¥181,000 ($1,649.14) per share, or about ¥67 billion ($610 million), sending shares of Taito sharply higher in trading on Tuesday.

Taito shares were up ¥20,000 ($182.12) to ¥181,000 at the close of trading, while shares of Square Enix were up ¥55 ($0.50) to ¥3,050 ($27.78).

Square Enix makes the popular Final Fantasy and Dragon Quest games series, while Taito developed the 1980s arcade game classic Space Invaders. Taito also operates 270 arcades across Japan.

Taito’s parent company Kyocera, which controls a 36 percent stake in the company, according to The Japan Times, has agreed to the bid. Shares of Kyocera were up ¥100 ($0.91) to ¥7890 ($71.83).

Taito will hold on to its name and operate independently within Square Enix once the acquisition is finalized.

‘It’s reflecting the cost of competing in the next generation.’
-Michael Pachter, Wedbush, Morgan
Square Enix President Yoichi Wada said the company would continue to make such acquisitions in order to survive in the increasingly competitive and varied video game industry.

“Video game consoles, cell phones, car navigators, and game platforms have become very diversified,” he said.

His company competes with Bandai and Namco, which announced a merger in May. It also competes with Sega Sammy Holdings, which was formed last October after Sammy, a manufacturer of pachinko slot machines, acquired Sega, developer of Sonic the Hedge Hog and other games, for ¥175.3 billion ($1.6 billion).

Square Enix is itself the result of a merger that occurred in 2003. Takara and Tomy are also negotiating a merger of their toy and game companies.

Third-Biggest Game Maker
The deal will make Square Enix the third-biggest game maker in Japan, behind Nintendo and Namco Bandai Holdings, according to the Tokyo market research firm Enterbrain, as reported by Bloomberg. Takara and Tomy would be the fourth largest.

“There’s been quite a few mergers and consolidations in Japan,” said David Cole, interactive entertainment analyst with DFC Intelligence. “A lot of it is Japanese companies trying to become more globally focused and becoming stronger in North America and Europe. They’re looking at where their growth is. That’s one of the things that’s helping drive these mergers.”

He pointed out that Square Enix has done well in North America and Europe, while Taito has tried to bring a few titles to the United States, but is not a well-known name in the U.S. anymore.

One of the goals when Square merged with Enix was to bring their games to more of the worldwide market. Taito is best known for Space Invaders, a game that was popular 25 years ago.

While Taito has introduced many other products since then and managed to distribute many of them abroad and find a limited audience, it has probably achieved more success lately as an arcade company within Japan.

“They’re known as much more of a Japan-based company that hasn’t had much of an impact outside Japan,” said Mr. Cole.

“I don’t think this acquisition is going to have any impact on the U.S. market,” said Michael Pachter, a research analyst who covers games for Wedbush Morgan Securities in Los Angeles. “[Taito] hasn’t had any big games in a while.”

He speculated that Square Enix may have acquired Taito to buy its development talent, and agreed the acquisition will enable Square Enix to compete better in the market.

“It’s reflecting the cost of competing in the next generation,” said Mr. Pachter. “Combine the balance sheets and you’re much stronger.”

Square Enix reported sales of ¥73.9 billion ($671.9 million) in the fiscal year ending March 31, according to Bloomberg, while Taito had revenue of ¥84.6 billion ($672.77 million) for an equivalent period.

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