Bandai and Namco have announced their plans to merge, forming a new company called Namco Bandai Holdings. Bandai will buy Namco for approximately $1.7 billion. This move will result in the second largest toy-game manufacturer in Japan.

Market reactions to the announcement have been muted. The price of U.S.-listed Bandai shares fell slightly Monday after the merger announcement, as did Namco's. Bandai shares fell two percent on the Nikkei, but Namco shares rose 8.9 percent.

The companies cited several reasons for the merger. First, because of the declining birth rate in Japan, the young demographic will shrink, resulting in intensified competition. Second, the rising costs of game production will be forced even higher once game development is underway for the next generation of consoles from Sony, Microsoft, and Nintendo. The new company expects that the newly-joined units will be both flexible enough to meet the demands of competition and efficient enough to lower the costs of game production. Finally, the combination of Namco's game-making abilities with the character merchandizing of Bandai is expected to be a potent combination for creating profitable games.

The merger is expected to become official by September 29, 2005. RPGamer will keep its readers abreast of any further important developments in this story as they arise.