Sega COO Quashes Talk of Microsoft Deal in Favor of Independence

Takashi Mochizuki, Bloomberg News

The Sega Corp. logo displayed at the Tokyo Game Show 2022 in Chiba, Japan, on Thursday, Sept. 15, 2022. The show runs through to Sept. 18. Photographer: Kiyoshi Ota/Bloomberg , Bloomberg

(Bloomberg) -- Sega Corp. dismissed speculation it may be the target of acquirers including Microsoft Corp., as the studio behind Sonic The Hedgehog stressed it intends to remain part of a bigger Japanese entertainment conglomerate.

Sega, whose 60-year-old name is synonymous with the beginnings of the videogame industry, maintains a close relationship with Xbox-maker Microsoft but will remain within Sega Sammy Holdings Inc., co-Chief Operating Officer Shuji Utsumi told Bloomberg News.

Sega Sammy’s shares rose to their highest since 2007 this week. Legal filings in the Federal Trade Commission’s suit against Microsoft revealed that the US company considered buying Sega to beef up its Xbox Game Pass subscription service.

“No, not now,” Utsumi said when asked if the company was open to acquisition talks. He declined to say whether Microsoft had made a formal approach.

Read more: Microsoft Eyed Buying Square Enix, Sega and Bungie, Docs Show

Some analysts argue Sega could consider finding a new parent because Sammy’s main business of pachinko pinball-machines offers limited growth. Toyo Securities analyst Hideki Yasuda expects the games industry to consolidate as developers pool resources to offset soaring costs.

It’s unclear if Microsoft — which is trying to secure approval for a $69 billion takeover of Activision Blizzard Inc. — still entertains a Sega deal. The US firm considered acquiring Japanese game publisher Square Enix Holdings Co. as recently as 2019, according to the legal filings.

Sega has strong relationships with platform owners from Sony Group Corp. and Nintendo Co. to Apple Inc. and Amazon.com Inc. But Microsoft values Sega more than other platform operators, Utsumi said. The pair announced they will consider forming a strategic alliance in 2021 to support Sega’s initiative of developing big-budget games.

“We are very close with Microsoft and have a great relationship with its management team,” he said. “Microsoft particularly has a high regard for us. Xbox’s Phil Spencer and Sarah Bond are really serious about values that video game fans emphasize.”

Read more: Microsoft Sets Sights on Sony’s Home Turf in Console Clash

Microsoft is keen to strengthen ties with Japanese video game publishers to leaven its US-centric catalog and catch Sony and Nintendo beyond the US.

Xbox’s presence in Japan remains tiny, data from industry tracker Famitsu show, but it’s making progress. The number of games that Japanese publishers provide to Microsoft’s platform is increasing, including popular franchises previously exclusive to the PlayStation like Sega’s Yakuza and Persona games.

--With assistance from Kurumi Mori.