Japanese Toy Maker Bandai Rejects Merger With Sega

TOKYO — Japanese video game manufacturer Sega Enterprises Ltd. and Bandai Co., Japan’s biggest toy company, Tuesday abruptly canceled plans to merge and create a multimedia entertainment company with annual sales of more than $6 billion.

Opposition to the merger had been building within Bandai, whose hit product Tamagotchi, an electronic baby chicken, has propelled the company into the international spotlight.

At a news conference, Sega President Hayao Nakayama said the cancellation was due to Bandai’s opposition. Bandai managers reportedly asked Sega to reconsider the merger, arguing that the cultural differences between the companies were too great for a successful marriage.

The two companies said they will instead form a business alliance for such projects as joint operation of amusement facilities or development of software products.

The proposed merger was announced in January. Aimed at creating strength through the combination of two industry leaders, it was unusual in the Japanese business world, where big-ticket corporate marriages more often are government-engineered deals designed to restructure an industry or save an ailing company.

Sega executives seemed surprised by the turn of events. “I was not 100% sure, but I was 99% sure we would make it,” Nakayama said at a hastily called news conference.

On Monday, the Bandai board of directors voted to approve the merger. But Tuesday, the board reversed itself and rejected the plan. Sega accepted Bandai’s action at an emergency board meeting later in the day.