Takuya Nakayama rose and walked to the floor-to-ceiling window, gazing out at the bustling streets below.
"This is the platform's moat," Nakayama said. "The 3D0 treated hardware as a one-off sale—a single hammer blow. Their failure was inevitable. Sega must learn from this. Jupiter cannot just be a game console; it must become the network terminal that connects players. Only by embedding player social networks within our ecosystem can we remain invincible in future competition."
Oguchi Hisao noted the key points.
Nakayama turned around. "Sega cannot afford to be complacent in developing the network functions for our next-generation console. The PC market is expanding faster than we anticipated. If Sega fails to provide a network experience on par with PCs, players accustomed to online social interaction will eventually abandon us."
"Understood," Oguchi Hisao nodded.
The aftershocks triggered by the 3D0's exit sparked widespread discussion within the industry, but among the players, it was merely a minor footnote.
For the average gamer, who sat at the table mattered little. What mattered was who could provide the best games.
Late September.
The Tokyo sky was high and clear, and a distinct autumn chill already lingered in the breeze.
Inside the Executive Office of the Sega Headquarters Building, the air conditioner hummed steadily, its cool draft rustling a thick stack of documents at the corner of the desk.
Several elegantly bound institutional brochures lay open on the expansive solid wood desk, their covers bearing the logos of various securities firms and investment banks.
Today's agenda was clear.
The plan to acquire Sotsu had been unanimously approved by the Board of Directors. Some directors had even remarked that the acquisition would be a highly lucrative deal in its own right, even without Director Hoshino's capital gains from Southeast Asia.
With the strategic direction set, the project was moving into the operational phase.
The first step was to select a third-party financial advisory firm to manage the transaction.
After the acquisition, the bulk of the business integration would fall upon Sega Galaxy. As the Managing Director of Sega Galaxy, Kiyoshi Hattori held absolute authority on this matter.
Takuya Nakayama pushed the last document aside and looked up at Kiyoshi Hattori, who sat opposite him.
"The foreign investment banks have put together an impressive proposal," he said, gesturing to the two English-language documents on his left. "The financial due diligence models, risk hedging strategies, and tax planning are all meticulously structured. The non-disclosure agreements are also airtight, so we don't have to worry about leaks causing stock price volatility."
Kiyoshi Hattori took off his reading glasses and slowly wiped the lenses with a velvet cloth.
"The plan is sound," the old man said deliberately. "It's perfect for dealing with Wall Street firms. But against Sotsu, it's likely to run into some cultural friction."
Takuya Nakayama laughed aloud. He pushed the English documents aside and pulled the materials from several domestic Japanese brokerages and consulting firms closer.
"Sotsu is a typical old-school Japanese company," Hattori said, putting his glasses back on. "The founders and top management are all around sixty. They've spent their entire careers in copyright agency and advertising planning, where business is built on personal relationships, face, and bonds forged over sake. If you send a bunch of American investment banking elites in custom suits, spouting jargon, to talk acquisitions with them—slapping financial statements on the table and telling them what their company is worth—the deal will collapse on the spot."
In acquiring a company, the financial settlement is merely the surface.
The core is winning over the people.
A forced takeover would only yield an empty shell. Sotsu's true value lies in the experienced hands managing its production committees.
If you push them too far, they'll take their client networks and jump ship. Then Sega would be buying a pile of scrap paper.
"Domestic firms," Takuya Nakayama said, tapping the documents from Nomura and Daiwa. "Their financial models aren't as precise. Their biggest flaw is a loose tongue. The Ginza mama-sans often hear rumors of which two companies are merging long before the Tokyo Stock Exchange does."
Kiyoshi Hattori chuckled.
"But they know how to deal with old Japanese men," Hattori pointed out the key factor. "Find the right intermediary, arrange a few rounds of golf, and have a couple of drinking sessions at a ryotei. Gradually smooth over the resistance within Sotsu's management. Tell them that being acquired by Sega isn't a surrender—it's a powerful alliance. Their positions will be secure, and their compensation will even increase. This kind of subtle, behind-the-scenes work is something only domestic firms can pull off brilliantly."
Paying a bit more in intermediary fees upfront, or accepting the risk of a slight increase in acquisition costs due to leaked information, would be a worthwhile trade for a smooth transition after the merger.
If the business integration went smoothly, the profits from subsequent operations would quickly offset the extra expenses.
"Do you have any recommendations among these domestic firms?" Nakayama asked.
Hattori opened one of the files. "The General Manager of Daiwa Securities' M&A Department is a Waseda University alumnus of Sotsu's Vice President. They're still members of the same golf club. This connection could be useful."
"In the Japanese corporate world, the 'classmate' connection is more powerful than any contract," Takuya Nakayama remarked.
"It's more than just that," Kiyoshi Hattori added. "Sotsu's main concern is that after being acquired by Sega, their original team will be sidelined. They hold the copyright agency for Sunrise and have endured Sunrise's bullying for years. Now that Sega has become a major shareholder in Sunrise, Sotsu is naturally on guard."
"So, we need someone who can speak heart-to-heart with them," Takuya continued, following the line of reasoning. "Someone who can reassure them that Sega's acquisition of Sotsu is about expanding the business, not settling old scores."
Crucially, the upper hand now rested entirely with Sega.
Japan's economic bubble had burst years ago.
The Ministry of Finance was constantly calling for economic stimulus, but in reality, major financial institutions were drowning in a swamp of bad debts.
A few years ago, when the Nikkei Index soared to 38,000 points, these financial elites walked with an air of invincibility, and Ginza's nightlife revolved around the business cards of securities firms.
Now, with the index halved and then halved again, many institutions couldn't even pay out year-end bonuses, struggling just to get by.
At this critical juncture, Sega was expanding against the tide, armed with an abundant cash flow.
A major deal like the acquisition of Sotsu would be a windfall. The financial advisory fees alone—even a few percentage points—would be enough to sustain a mid-sized consulting firm for an entire year.
"I only mentioned in passing at a golf outing last week that Sega has been reviewing its finances lately," Kiyoshi Hattori said, his tone tinged with amusement. "The next day, six boxes of Shizuoka melons appeared on my desk, along with visit requests from three brokerage managing directors. Their ears are sharper than anyone's."
"Keep the melons, but the deal depends on our skill," Takuya Nakayama said, leaning back in his executive chair. "We've been starving for a big break like this. If we don't bring our A-game, we'll never secure Sega's commission. And if their service is subpar, we'll replace them in a heartbeat."