Sammy Corporation and SEGA Corporation Announce Business Combination: SEGA SAMMY HOLDINGS INC.

TOKYO--()--May 19, 2004--

  This press release relates to a business combination (as further defined below, the "Transaction") to be effected under Japanese law whereby Sammy Corporation and SEGA Corporation (together, the "Companies") will become wholly-owned subsidiaries of a newly formed Japanese corporation (as further defined below, the "Holding Company"). The Transaction and information to be distributed in connection with the Transaction are subject to Japanese disclosure requirements that are different from those of the United States. Financial statements and financial information included herein and therein have been and will be prepared in accordance with Japanese accounting standards that may not be comparable to the financial statements or financial information of United States companies.  



It may be difficult for you to enforce your rights and any claim you may have arising under the U.S. federal securities laws in respect of the Transaction, since the Companies and the Holding Company will be located in Japan, and some or all of their respective officers and directors may be residents of Japan. You may not be able to sue the Companies, the Holding Company or their respective officers or directors in a Japanese court for violations of the U.S. securities laws. It may be difficult to compel the Companies, the Holding Company or any of their respective affiliates to subject themselves to a U.S. court's judgment.

You should be aware that the Companies or the Holding Company may purchase securities otherwise than pursuant to the Transaction, such as in open market or privately negotiated purchases.

Name of Company:                Sammy Corporation

Name of Representative:         Hajime Satomi
                                President and Representative Director

(Code No. 6426, Tokyo Stock Exchange 1st Section)

Name of Contact Person:         Koichi ukazawa
                                (TEL:03-5950-3790)


Name of Company:                SEGA Corporation

Name of Representative:         Hisao Oguchi
                                President and Representative Director

(Code No. 7964, Tokyo Stock Exchange 1st Section)

Name of Contact Person:         Akira Sugano
                                (TEL:03-5736-7111)

Notice of Business Combination Through Establishment of a Joint Holding Company

Notice is hereby given that Sammy Corporation (President: Hajime Satomi, Headquarters: Tokyo, hereinafter "Sammy") and SEGA Corporation (President: Hisao Oguchi, Headquarters: Tokyo, hereinafter "SEGA") have resolved at the meetings of their respective Board of Directors on May 18, 2004 to establish SEGA SAMMY HOLDINGS INC. (the "Holding Company") as a joint holding company through a share-for-share exchange (the "Transaction") and conduct a business combination (the "Business Combination") as wholly-owned subsidiaries of the Holding Company, subject to approvals of the shareholders and relevant regulatory authorities, and, in connection therewith, have entered into a Share-for-Share Exchange (Kyodo Kabushiki-Iten) Agreement (the "Agreement").

1. Purpose of the Business Combination

Sammy and SEGA have reached an agreement on the Business Combination for the purpose of maximizing corporate value by combining the management resources and maximizing synergistic benefits in order to further strengthen their position as a globally integrated entertainment company.

Sammy and SEGA have minimal overlap and competition with each other's businesses and are expected to achieve complementary results. The Business Combination aims to harmonize both companies' technical development capabilities with Sammy's high growth potential and profitability, and SEGA's globally renown brand name, while concurrently pursuing synergistic benefits and business efficiencies in order to accelerate both companies' international business development, thereby enabling both companies to fortify their combined presence as an integrated entertainment company.

2. Outline of the Business Combination

(1) Scheme of the Business Combination

Sammy and SEGA will conduct the Business Combination according to the plan outlined below, subject to approvals at their respective shareholders' meetings, which are expected to be held in June 2004, and applicable regulatory approvals.

-- On October 1st 2004, Sammy and SEGA plan to jointly establish the Holding Company and respectively become wholly-owned subsidiaries of the Holding Company through the share-for-share exchange.

-- By March 2007, full integration is expected to be completed under the Holding Company and new entities will be formed on the basis of business segments.

(2) Schedule of the Business Combination


May 18, 2004                The board meetings of Sammy and SEGA for
                            approvals of the Transaction

June 25, 2004 (Tentative)   Shareholders' meeting of Sammy

June 29, 2004 (Tentative)   Shareholders' meeting of SEGA

Sept. 27, 2004 (Tentative)  Effective date of delisting of Sammy
                            and SEGA shares

Oct. 1, 2004 (Tentative)    Effective date of the Transaction, the
                            commercial registration of the Holding
                            Company and listing of the Holding Company
                            shares

Sammy and SEGA may change the above schedule upon discussion should any significant issues arise as the Business Combination planning process proceeds.

(3) Exchange Ratio

     Company                 Sammy                     SEGA
----------------------------------------------------------------------
  Exchange Ratio             1.00                      0.28
----------------------------------------------------------------------

One Holding Company share will be allotted in exchange for each Sammy share, and 0.28 Holding Company shares will be allotted in exchange for each SEGA share. The Holding Company will adopt the unit system and one unit will comprise 100 shares.

Based on the results of valuation analysis conducted by financial advisors appointed by the respective companies, Sammy and SEGA had extensive negotiations and came to an agreement on the above Exchange Ratio. Each company received a fairness opinion on the Exchange Ratio from a financial point of view from their respective financial advisors: Morgan Stanley Japan Limited for Sammy and Daiwa Securities SMBC Co. Ltd. for SEGA.

It should be noted that should any material changes related to various assumptions underlying the calculations of the Exchange Ratio occur, the Exchange Ratio may be subject to change following further discussions between Sammy and SEGA.

(4) Cash Consideration upon the Transaction

The Holding Company will not pay any cash consideration upon the occurrence of the Transaction.

(5) Listing of the Holding Company

The Holding Company plans to file an application for the listing of its shares on the Tokyo Stock Exchange. The listing date is scheduled to be October 1, 2004, which is the same date as the effective date of the Transaction, subject to applicable regulations of the Tokyo Stock Exchange. In relation to the Transaction, Sammy and SEGA shares will be delisted from all stock exchanges effective September 27, 2004.

(6) Actions to be taken in respect of Convertible Bonds, Stock Options and certain Stock Acquisition Rights

The following actions will be taken in respect of convertible bonds and stock options issued by Sammy and SEGA, and stock acquisition rights issued by Sammy in connection with the scheduled delisting of shares of Sammy and SEGA as a result of the Transaction as mentioned in 2.(5) above:


--  Sammy

    --  Sammy Corporation Convertible Bonds due 2009: necessary
        actions will be taken before the Transaction (by September 30,
        2004) for early redemption or other alternatives

    --  Stock Options: necessary actions are expected to be taken for
        all outstanding stock options before the Transaction (by
        September 30, 2004) to be cancelled

    --  2nd Stock Acquisition Rights (paid-in): The Stock Acquisition
        Rights issued on April 16, 2003 will be cancelled by payment
        to the holders of such Stock Acquisition Rights at the initial
        issue price per Stock Acquisition Right (81 yen) before the
        Transaction (by September 30, 2004)

--  SEGA

    --  SEGA Corporation Zero Coupon Convertible Bonds due 2004:
        expected to be redeemed at maturity as of June 18, 2004

    --  SEGA Enterprises, Ltd. 5th Unsecured Convertible Bonds (with
        the terms of downward adjustments of the Conversion Price and
        ranking pari passu with other convertible bonds): necessary
        actions are expected to be taken before the Transaction (by
        September 30, 2004) for early redemption or other alternatives

    --  Stock Options: necessary action should be taken for all
        outstanding stock options before the Transaction (by September
        30, 2004) to be cancelled for free


    (7) Actions to be taken in respect of Treasury Stock

    The following actions with regard to the respective treasury stock
and SEGA shares held by Sammy will be taken:

--  Sammy Treasury Stock (7.5% of Sammy Total Shares Outstanding
    ("TSO") (1))
    --  To be cancelled before the Transaction (September 30, 2004)

--  SEGA Treasury Stock (11.4% of SEGA TSO (1))
    --  To be cancelled at an appropriate time after the closing of
        the Transaction

--  Sammy's Stake in SEGA (22.4% of SEGA TSO (1))
    --  To be cancelled at an appropriate time after the closing of
        the Transaction

(1) As of March 31, 2004

(8) Stock Transfer Agent

The stock transfer agent for the Holding Company will be UFJ Trust Bank Limited.

3. Synergistic Benefits

(1) Complementary Business Portfolios and Earnings Enhancement through Efficient Management

Through the Business Combination, Sammy and SEGA will be able to achieve business synergies with little overlap in their businesses and customer bases, as pachislot and pachinko-related businesses for Sammy and amusement machine sales and amusement arcade operation businesses for SEGA, respectively, are becoming major revenue sources. In the mid-term, we expect to reduce costs and enhance earnings through efficient management by effectively utilizing group management resources including employees, products, capital and intelligence by restructuring and reorganizing domestic and overseas subsidiaries engaged in overlapping businesses with relatively small revenues, such as Sammy's amusement-related business.

(2) Pursuit of Synergistic Benefits

By effectively allocating management resources of both companies, we will pursue synergistic benefits in all business segments. Maximizing synergistic benefits will not only enhance earnings, but also effectively improve cost performance. Specific plans expected to create synergies in the mid-term are as follows:

-- Maintain the top-maker position in the pachislot business and strive to become the top-maker in the pachinko business by applying SEGA's technology cultivated in the amusement industry to Sammy's pachislot and pachinko-related business to improve the quality of imaging technology and sound development, thereby enhancing the entertainment aspects of pachislot and pachinko machines;

-- Enhance earnings in the arcade operation facilities business by integrating R&D capabilities and creativity of both companies in order to strategically develop multi-complex amusement facilities such as large commercial facilities and theme parks;

-- Enhance earnings in the consumer business by streamlining management through restructuring and integrating the consumer business while improving contents capabilities and enhancing title selections, and effectively utilizing contents from the pachislot and pachinko-related business. We also plan to actively penetrate into overseas undeveloped markets;

-- Establish Sammy's arcade video game machine "Atomiswave" as the leading low cost and high quality arcade video game machine by enhancing contents through the utilization of SEGA's R&D capabilities and globally expanding the market. Also, we plan to expand the market by promoting on-line games through networking arcade machines; and

-- Enhance earnings based on complementary benefits through multi-development of contents in each business segment.

(3) Pursuit of Streamlined Management under a Holding Company Structure

The Holding Company is expected to provide overall planning, operation and administrative functions in order to achieve maximum efficiency throughout the group. It is also expected to contribute to streamlined group management by promptly and flexibly executing cash flow allocation and capital expenditure plans within the group.

(4) Stable Management Infrastructure Establishment

The Business Combination will lead to efficient management by maximizing the synergistic effects in each business area to improve management practices, which currently depend on particular businesses, and quickly establish a stable and continuous management infrastructure.


4. Outline of the Business Combination Parties (Consolidated)
    (as of March 31, 2004)

(1)  Company
     Name           Sammy Corporation           SEGA Corporation
-------------- --------------------------- ---------------------------
(2)  Descrip-  Development, manufacturing  Development, manufacturing
     tion of   and sale of pachislot and   and sale of amusement
     Business  pachinko machines and       equipment, operation of
               peripherals, amusement      amusement arcades, and
               arcade equipment and home   development, manufacturing
               video game software         and sales of consumer
                                           products
-------------- --------------------------- ---------------------------
(3)  Date of
     Incor-         November 1, 1975              June 3, 1960
     poration
-------------- --------------------------- ---------------------------
(4)  Location
     of Head-  23-2, Higashi Ikebukuro 2-  2-12, Haneda 1-chome, Ohta-
     quarters   chome, Toshima-ku, Tokyo    ku, Tokyo
-------------- --------------------------- ---------------------------
(5)  Repre-    Hajime Satomi, President    Hisao Oguchi, President
     sentative  and Representative          and Representative
                Director                    Director
-------------- --------------------------- ---------------------------
(6)  Paid-in
     Capital       15,374 million yen          127,582 million yen
-------------- --------------------------- ---------------------------
(7)  Total
     Number of
     Shares         87,500,718 shares          174,945,690 shares
     in Issue
-------------- --------------------------- ---------------------------
(8)  Share-
     holders'      112,987 million yen         97,934 million yen
     Equity
-------------- --------------------------- ---------------------------
(9)  Total
     Assets        299,272 million yen         188,884 million yen
-------------- --------------------------- ---------------------------
(10) Fiscal
     Year               March 31                    March 31
     End
-------------- --------------------------- ---------------------------
(11) Number of
     Employees           1,927                       3,507
-------------- --------------------------- ---------------------------
(12) Major     (Purchase)                  (Purchase)
     Suppliers   Kaga Electronics,           Hitachi Software
     and         Mizuhokiden and             Engineering
     Customers   Takaden

               (Sales)                     (Sales)
                 Aristocrat Technology,      Namco, Taito and Happinet
                 Sanyo Hanbai and Sony
                 Computer Entertainment
-------------- --------------------------- ---------------------------
(13) Principal Hajime Satomi       27.6%   Sammy Corporation   22.4%
     Share-    S.S. Planning Co.,          Treasury Stock      11.4%
     holders   Ltd                 10.8%   Japan Securities
     and       FSC Y.K.             8.0%   Finance Co.,Ltd      2.8%
     their     Treasury Stock       7.5%   S.S. Planning Co.,
     Share-    The Master Trust            Ltd                  2.7%
     holding   Bank of Japan, Ltd.  4.8%   Japan Trustee
     Ratio                                 Service Bank T       2.1%
-------------- --------------------------- ---------------------------
(14) Main      UFJ Bank Limited, Sumitomo  Sumitomo Mitsui Banking
     Banks     Mitsui Banking Corporation, Corporation, Mizuho
               Mizuho Bank Ltd. and Bank   Corporate Bank Ltd., The
               of Tokyo-Mitsubishi, Ltd    Sumitomo Trust & Banking
                                           Co., Ltd., UFJ Banking
                                           Limited and Resona Bank
                                           Ltd.
-------------- --------------------------- ---------------------------
(15) Relation- Capital  Holding 39,248,600 shares (22.4% of SEGA TSO)
     ship               as investment securities
     between   -------- ----------------------------------------------
     Parties   Personal Sammy's CEO holds the post of Chairman of SEGA
               -------- ----------------------------------------------
               Trading  Sammy and SEGA have transactions in the
                        normal course of business
-------------- -------- ----------------------------------------------

(16) Result of Operations for the Latest 3 Fiscal Years (Consolidated)
----------------------------------------------------------------------
                    Sammy Corporation            SEGA Corporation
------------- ----------------------------- --------------------------
Fiscal Year
 Ended in      FY2001    FY2002    FY2003    FY2001   FY2002   FY2003
 March
------------- --------- --------- --------- -------- -------- --------
Net Sales
(million yen)  164,293   165,774   251,226  206,334  197,223  191,257
------------- --------- --------- --------- -------- -------- --------
Operating
 Income
(million yen)   54,022    51,709    71,676   14,200    9,296   14,480
------------- --------- --------- --------- -------- -------- --------
Ordinary
 Profit
(million yen)   53,768    51,020    68,330   12,471    7,783   12,617
------------- --------- --------- --------- -------- -------- --------
Net Income
(million yen)   23,906    23,066    32,196  -17,829    3,054    8,760
------------- --------- --------- --------- -------- -------- --------
Net Income
 per Share
 (yen)          452.44    436.79    424.68  -119.15    19.73    55.96
------------- --------- --------- --------- -------- -------- --------
Dividend per
 Share
 (yen)           50.00     70.00     90.00     -        -         -
------------- --------- --------- --------- -------- -------- --------
Shareholders'
 Equity
 per Share
 (yen)        1,074.13  1,298.90  1,390.74   548.40   560.40   631.88
------------- --------- --------- --------- -------- -------- --------

5. Outline of the Holding Company

(1) Name: SEGA SAMMY HOLDINGS INC.

(2) Function:

-- Provide an overall group management function through planning, operation and administration of the entire group, managing and controlling business operations of each company with each subsidiary's authority and responsibility clearly defined, thereby optimizing the efficiency of the overall group

-- Devise and execute a group strategy to spur profit growth and achieve the effects of integration in a timely manner by utilizing management resources

(3) Headquarters: Minato-ku, Tokyo

    (4) Directors and Statutory Auditors (Current Positions)


        Chairman, President and       Hajime Satomi
         Representative Director:     (SEGA Chairman
                                        and Representative Director,
                                       Sammy President
                                        and Representative Director)
        --------------------------------------------------------------
        Vice Chairman and Director:   Hisao Oguchi
                                      (SEGA President
                                       and Representative Director)
        --------------------------------------------------------------
        Senior Managing Director:     Keishi Nakayama
                                      (Sammy Senior Managing Director)
        --------------------------------------------------------------
        Managing Director:            Kiyofumi Sakino
                                      (Sammy Managing Director)
        --------------------------------------------------------------
        Director:                     Kenkichi Yoshida
                                      (Sammy Managing Director)
        --------------------------------------------------------------
        Director:                     Hideki Okamura
                                      (SEGA Senior Executive Officer)
        --------------------------------------------------------------
        Director:                     Yasuo Tazoe
                                      (SEGA Executive Officer)
        --------------------------------------------------------------
        Standing Statutory Auditor:   Kazutada Ieda
        --------------------------------------------------------------
        Statutory Auditor:            Akio Kioi
        --------------------------------------------------------------
        Statutory Auditor:            Ryoichi Arai
        --------------------------------------------------------------
        Statutory Auditor:            Toshio Hirakawa
        --------------------------------------------------------------

(Note)  The Statutory Auditors candidates listed above are the
        outside Statutory Auditors as defined in paragraph 1 of
        Article 18 of the Audit Special Exceptions Law of Japan (Law
        No. 22 of 1974).

    (5) Number of Staff: approximately 50 persons

    (6) Capital Stock: 10 billion yen

    (7) Fiscal Year-end: March 31

    (8) Auditing Firm: Azsa & Co.

    (9) Business Prospects after the Transaction
        Business prospects after the Transaction will be announced as
        they become available after further discussion

Contacts

SEGA of America, Inc.
Bret Blount, 415-701-4124
bret.blount@segaamerica.com
Investor Relations Dept., 03-5736-7111
or
Sammy Corporation
Investor Relations Dept., 03-5950-3790

Contacts

SEGA of America, Inc.
Bret Blount, 415-701-4124
bret.blount@segaamerica.com
Investor Relations Dept., 03-5736-7111
or
Sammy Corporation
Investor Relations Dept., 03-5950-3790