America's No. 1 financial conglomerate

Chapter 336 Two Choices

Ryan Ruiz smiled, slowly stood up, and his leather shoes made a crisp clattering sound on the gleaming office floor, each step seeming to pave the way for the important moment to come.

He walked to his desk, which was piled high with documents yet remained neatly organized. His fingers lightly brushed over a stack of documents, and after a moment, he precisely pulled out a neatly sealed document.

He then turned and walked quickly back, handing the document to Ernst.

When Ernst took the document, he was also filled with curiosity and couldn't wait to open it and take a look.

Ryan Ruiz's calm voice rang in his ears, "We have two acquisition targets this time. The first one is NEC's game console business."

Ernst knew NEC; it was a Japanese electrical company and a core member of the Sumitomo Group. In the Japanese business sector, it specialized in providing communication services, information technology, and network products and solutions to various commercial enterprises, and had always enjoyed a good reputation in the industry.

To his utter surprise, NEC was also involved in the game console business, something he had never heard of before.

"NEC's game consoles mainly include two categories: the PCEngine series and the PC-FX. The PCEngine is a home video game console developed by NEC in collaboration with Hudson, and it was officially launched in Japan as early as 1987."

His tone carried a hint of approval for the console: "This console adopted a high-efficiency three-chip architecture and was equipped with an enhanced version of the MOS Technology 65C02 processor. At the time, it was extremely popular in the Japanese market, attracting a large number of consumers and successfully capturing a significant market share."

"The PC-FX was the successor to the PCEngine launched by NEC in 1994. This host used CD-ROM as the standard data device, was equipped with a 21.5MHz NEC V810 RISC CPU, 2M RAM, and had excellent display effects, capable of displaying 16M colors and a maximum resolution of 640448. Its 2D processing capabilities were top-notch at the time."

At this point, Ryan Ruiz's tone suddenly turned regretful, as if lamenting a treasure that should have shone brightly but ultimately faded into obscurity. "However, it's a great pity."

He shook his head, seemingly regretting NEC's mistake. "NEC made a serious error in judging the development trend of the game industry and failed to accurately grasp the development wave of 3D games. This directly led to the dismal sales of PC-FX, and ultimately the entire NEC game console industry had to be completely shelved, which is truly regrettable."

"Actually, NEC has a significant advantage in hardware development," Ryan Ruiz added. "Although its consoles are slightly more expensive than those of its competitors like Nintendo, in terms of performance, they are definitely among the best in the industry."

"If NEC hadn't misjudged the development of 3D games back then, according to many industry insiders, it would have been fully capable of challenging the dominance of console giants like Nintendo and becoming Japan's fourth-largest console manufacturer. Perhaps the landscape of the game market would be completely different now."

As Ryan Ruiz proceeded with his presentation methodically, Ernst quickly flipped through the materials about NEC's game console business.

Then he stopped pointing and said thoughtfully, "Judging from the information, the acquisition price isn't too expensive."

The document clearly states the price for acquiring NEC's game console business: approximately $1.8 million. This would include all related intellectual property rights and patents, and even more surprisingly, it also includes a game console production line that has been in use for five years.

To Ernst, this price was like getting a great deal.

But Ernst changed the subject, a worried look on his face. "But thinking about it carefully, there are quite a few risks involved."

In terms of value, $1.8 million is definitely worth more than the price. Just the production line that produces 1500 million game consoles a year would cost an unknown amount of money to rebuild.

But as Ernst just said, the risks are equally enormous.

After acquiring YueDong Games, will it be able to keep up with the pace of industry development and catch up with its competitors in terms of 3D technology research and development?

How many unforeseen problems will we encounter and how many hidden pitfalls will we stumble into during the development of the next generation of consoles?

Can hardware costs be effectively controlled within a reasonable range to avoid excessive costs that cause product pricing to lose competitiveness?

Will the hardware design process proceed smoothly without encountering technical bottlenecks or design flaws?

Each of these problems is like a time bomb, which could affect the development after the acquisition at any time.

"Although NEC has accumulated some hardware technology, most of that technology is from several years ago and can no longer keep up with the rapidly developing demands of the game market. For YueDong Games to acquire the other party is equivalent to rebuilding a skyscraper on the other party's outdated foundation. The difficulty is self-evident, and a slight misstep could lead to huge losses."

“Actually, I have the same concerns,” Ryan Ruiz chimed in, clearly aware of the risks Ernst was worried about. “So, I’ve looked for another acquisition target for the company, instead of focusing solely on NEC.”

Ernst could hear the barely concealed excitement in Ryan Ruiz's tone, which made Ernst even more curious. He immediately refocused his attention on the documents in his hands, quickly flipping through them to find out who the second acquisition target was.

After flipping through the information about NEC, the name of the second company suddenly appeared before Ernst's eyes. He immediately perked up, his eyes lit up, and he couldn't help but exclaim in his heart: It's SEGA!

However, there was another name that Ernst was more familiar with.

Sega.

For Chinese people, the Chinese name "Sega" is much more well-known in the gaming industry than "SEGA".

Compared to NEC, Ernst undoubtedly knew far more about Sega.

This renowned company in the gaming industry was originally an American enterprise founded by three Americans in Honolulu, Hawaii.

In the beginning, the company's business was very simple, mainly supplying jukeboxes and slot machines to US military bases. No one expected that it would later cause such a big stir in the gaming industry.

After World War II, Sega entered the Japanese market by taking advantage of the presence of US troops stationed in Japan.

At that time in Japan, the game industry was in its infancy. Sega, with its unique products and operating model, quickly gained a foothold in the Japanese market and achieved brilliant success far exceeding that in the United States, becoming an indispensable force in the development of the Japanese game industry.

"Would an industry giant like Sega be willing to sell its own company?" This was Ernst's biggest concern.

"After all, Sega is one of the world's three largest home video game console manufacturers, and the game market is booming with a bright future. Under these circumstances, why would Sega's shareholders easily sell the company?"

However, Ryan Ruiz had clearly already conducted a thorough investigation into Sega's situation, and he confidently replied, "You may not know this, but Sega is actually on the verge of bankruptcy and is in a very difficult situation."

Ernst had heard that Sega was suffering serious financial losses.

Back in 1994, Sega, full of ambition, was determined to defeat Nintendo and dominate the gaming industry, so it released its sixth-generation game console, the Sega Saturn.

To make this console competitive in the market, Sega spared no expense on hardware configuration, even to the point of being somewhat extravagant.

In terms of CPU, the Sega Saturn innovatively uses two Hitachi microprocessors, each with a frequency of up to 28.6 MHz. Theoretically, the combined performance of the two processors exceeds 56 MHz.

What does this mean?

Last year, computers on the market that cost several thousand dollars and were equipped with 586 processors only had a clock speed of 100MHz.

In terms of CPU performance alone, the Sega Saturn was far ahead of its time.

In addition to the CPU, the Sega Saturn also uses a dual-GPU design, which processes game graphics in a dual-channel manner, theoretically resulting in smoother and more refined game visuals.

Surprisingly, Sega made an extremely wrong decision.

Despite possessing the world's most advanced 3D game technology, Sega focused on 2D games during the development of the Saturn, completely ignoring the growing trend of 3D games becoming the mainstream in the market, making a foolish mistake along with NEC.

The end result was that the Sega Saturn's 3D graphics were far inferior to Sony's subsequent PlayStation console, but the two were not much different in price.

This left the Sega Saturn with no advantage in the competition with the PS, and it was almost completely crushed by the PS, resulting in dismal sales.

Sega also fell into a predicament of huge losses due to the failure of the Sega Saturn.

Ernst only knew that Sega was suffering heavy losses, but he didn't expect the situation to be this bad. Ryan Ruiz actually used the word "on the verge of bankruptcy" to describe it, which shows that Sega is really having a tough time now.

Ryan Ruiz continued, "In fact, as early as last year, Sega had already realized its own crisis and began to actively seek a way out. At that time, it also planned to merge with Bandai, hoping to alleviate financial pressure, integrate resources, and jointly cope with market competition through the merger."

"However, unfortunately, Bandai's Tamagotchi product unexpectedly sold very well and received an excellent market response. Seeing this, Bandai immediately announced the postponement of its merger plan with Sega, and the merger was naturally put on hold."

"After the merger plan with Bandai failed, Sega had to find a new partner and eventually chose to cooperate with Microsoft, hoping to use Microsoft's strong financial resources to jointly develop the next generation of game consoles. This new console was named Demon Blade."

"But personally, I am not optimistic about this collaboration between Sega and Microsoft. I think it will be difficult for them to succeed."

"Oh?" Ernst looked surprised upon hearing this. "Sega has a deep technical foundation in game console development, and Microsoft has strong financial backing. Logically speaking, this should be a collaboration that is generally favored by the industry, right? Why don't you think it's a good match?"

Ryan Ruiz patiently explained, "First and foremost, the most crucial point is that both Sega and Microsoft have their own ambitions and plans, and neither wants to be in a passive position in the cooperation."

"Microsoft's choice to partner with Sega is clearly aimed at learning Sega's core technologies and experience in game console development and game industry operation through this collaboration—in short, it's about learning from them. Sega isn't stupid; they naturally understand Microsoft's true intentions, so they certainly won't easily share their core competencies during the collaboration."

Given this atmosphere of mutual distrust and hidden agendas, how could their collaboratively developed next-generation mainframe possibly perform well, let alone achieve phenomenal sales in the market?

"Secondly, there's the issue of game content," Ryan Ruiz continued his analysis. "In recent years, Sega has been at a disadvantage in its competition with Sony, being firmly suppressed by Sony. This has directly led many well-known Japanese game developers to choose to side with Sony and establish close cooperative relationships with them."

"Two of Japan's top gaming IPs, Final Fantasy and Dragon Quest, both chose to release exclusive games on Sony's PlayStation console. It's well known that high-quality game content is a key factor in attracting consumers to buy game consoles. Without the support of these top-tier IPs and a lack of excellent game content, why would consumers be willing to buy Sega's game consoles?"

He sighed, "Unless Sega can launch a groundbreaking product that completely disrupts the existing market landscape in terms of both technology and content, it will be impossible to reverse the current unfavorable situation."

"But judging from the current situation, Sega simply does not have the strength and capability to launch such a product; it's practically a pipe dream."

"So, you mean Sega is currently selling off its business?" Ernst seized on the key point and asked hastily.

"No, not at all." Ryan Ruiz shook his head, a reply that made Ernst frown and look puzzled.

Ryan Ruiz didn't leave Ernst wondering for long. Before Ernst could ask again, he explained, "Actually, I never intended to negotiate this acquisition with Sega's board of directors. That approach would not only be cumbersome, but also have a very low probability of success."

"Just like you said, the game market is incredibly hot right now, and Sega's management won't allow us to make an acquisition. They'll try even if it's a do-or-die situation. At worst, we'll just abandon the hardware business and focus solely on game content."

"Therefore, my plan is to acquire the Sega shares held by the CSK Group, thereby taking control of Sega. This way, I can bypass the internal obstacles within Sega and complete the acquisition more efficiently."

At that very moment, Ernst also saw the relevant information about the CSK Group in the documents and gained a clear understanding of Sega's current shareholding structure.

According to available information, Sega has undergone several changes in ownership throughout its history. The earliest change of ownership occurred in 1969 when the Gulf and Western Industries Group of the United States acquired Sega.

In 1984, due to strategic adjustments, the Gulf and Western Industrial Group decided to sell Sega.

Seizing this opportunity, Japan's CSK Group invested 90 billion yen to acquire approximately 30% of Sega's shares. It was from this point that Sega officially became a Japanese company, embarking on a new phase of development in the Japanese market.

Although CSK Group's involvement in Sega's daily management is not high in actual operation, and it mainly enjoys the returns as an investor, it is undeniable that CSK Group is Sega's true major shareholder.

Judging solely from the shareholding ratio, CSK Group's 30% stake is significantly smaller than the second-largest shareholder's 4.31% stake, giving it considerable influence in Sega's major decisions.

"Because of the failure of the Sega Saturn, CSK Group is now planning to abandon this part of the Sega business and no longer wants to invest in the game industry. But even so, after we contacted them, CSK Group made an exorbitant demand, asking for a very high price."

Ernst also saw the relevant price information in the documents, with CSK Group asking for as much as $11.4 billion for the 30% stake.

Acquiring NEC's entire game console business would only cost $1.8 million, while a 30% stake in Sega would cost $11.4 billion, a significant difference.

However, if the acquisition is successful and the strength and investment of Leap Games can help Sega regain its former glory in the game console market and become a leading company in the industry again, then this $11.4 billion investment will be a worthwhile deal, and the future returns will definitely far exceed the current investment.

Just look at Nintendo, the industry leader. Its market value is approaching 30 billion US dollars, making it the world's largest gaming company.

While Sega has had a rough few years and is heavily indebted, its market value is only one-tenth of Nintendo's, which is a bit unreasonable.

After learning about Ryan Ruiz's plan in detail, Ernst did not rush to express his own opinion, nor did he offer any suggestions for modification or interference.

He knew perfectly well that Ryan Ruiz had many years of experience in the gaming industry and was well-versed in industry trends.

Their understanding of market dynamics and corporate operations management is far more in-depth and professional than mine.

In this situation, I am simply unable to offer any constructive advice.

Professional matters should be left to professionals. Since we have chosen to trust Ryan Ruiz, we should give him full autonomy and trust those we employ, and not employ those we don't trust.

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