Sega Denies Any Plan to Merge With 3DO

By LAWRENCE M. FISHER NYT
Published: August 24, 1995

Sega Enterprises Ltd. today denied speculation that it had plans to acquire the 3DO Company, whose shares rose nearly 9 percent following a report that the two companies were in merger talks.

“We can say with confidence that Sega Enterprises has no intention of buying 3DO,” said Lee McEnany, a spokeswoman for Sega of America, the Japanese company’s North American subsidiary. An article in The San Francisco Chronicle today reported that Sega was in talks to buy all or part of 3DO.

Shares of 3DO, which is based in Redwood City, Calif., closed up $1.0625 today, to $13, in Nasdaq trading, after trading as high as $13.625. 3DO shares soared to $48.25 in October 1993 from an initial public offering price of $15 five months earlier, but have been trading recently in the $10-to-$13 range.

Analysts were sceptical of the merger speculation, noting substantial incompatibilities between the technologies used by the two video-game companies.

Sales of 3DO game players have improved since the company’s manufacturing partners, the Matsushita Electric Industrial Company of Japan and LG Electronics Inc. of South Korea, dropped the price to $299 in July. But analysts continue to question 3DO’s long-term
survival in the face of new competition from the imminent release of the Sony Corporation’s Playstation, as well as from more powerful machines from Sega itself and Nintendo.

Though 3DO has demonstrated a new technology called M2 that would leapfrog those machines, it has not announced a delivery date.

“The M2 technology is pretty cool and 3DO doesn’t have a way to bring it to market effectively,” said Neil West, editor of Next Generation, a magazine devoted to the new game machines. But he said that M2 cannot be affixed to Sega’s new Saturn game player, and that Sega is unlikely to shift technologies. “To abandon Saturn and adopt a new hardware platform would be suicidal,” he said.

Lee Isgur, an analyst with Jeffries & Company, said “Sega really needs something that will go beyond Saturn and blow Sony out of the water, so on the surface picking up M2 makes sense. But if Sega owned 3DO, would they have to manufacture the hardware, or could they farm it out to someone else, and would that someone else be able to make it on a loss basis as Matsushita is willing to do now? It just doesn’t make sense.”

Shernav Davra, a spokeswoman for 3DO, said the company would not comment on the speculation, but would have an announcement soon regarding manufacturing partners for M2. “It’s pretty much public knowledge that we are talking to everybody about the M2 technology,” she said.

Just how powerful M2 is remains unclear. The system has so far been demonstrated only in simulated form, on a videotape generated by computer workstations. 3DO executives have said that the technology could reach the market at the same time as the Nintendo Ultra 64, which is being developed in conjunction with Silicon Graphics Inc. and is scheduled for release next year.