updated 5/18/2004 2:49:13 PM ET 2004-05-18T18:49:13

Sega Corp., the video-game maker famous for Sonic the Hedgehog, and pinball-equipment maker Sammy Corp. said Tuesday they will integrate their operations under a new holding company that will become Japan’s biggest video game software company.

Sega and Tokyo-based Sammy will form the new company by Oct. 1. It will be 72 percent controlled by Sammy shareholders, the companies’ announced in a joint statement.

Their combined group annual sales are about 440 billion yen ($3.89 billion) will exceed those of the current largest Japanese game software firm, Konami Corp.

“By integrating our operations, we will strive to become the world’s number one entertainment company at an earliest time,” said Sammy president Hajime Satomi, who will head the new company.

Shares of Sammy will be exchanged one-for-one for shares in the new company. Sega shareholders will receive 0.28 share for each Sega share. The companies will reorganize their operations by March 2007.

The announcement came as Sega announced its profit tripled for the fiscal year ended March 31 as arcade-game sales and cost cutting boosted earnings.

The Tokyo-based company reported group net profit of 8.76 billion yen ($77 million), up from 3.05 billion yen a year earlier.

Sales inched down 3 percent to 191.3 billion yen ($1.7 billion) from 197 billion yen as overseas sales slipped 19 percent.

Sega’s sports games did not do well in the United States, a strategically important market, amid tough competition from rivals such as Electronic Arts, it said.

For the fiscal year ending March 31, 2005, Sega is predicting an 8.7 percent decline in profit to 8 billion yen ($70 million) on a 6.7 percent rise in sales to 204 billion yen ($1.8 billion).

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