Japanese publisher Namco has publicly proposed a merger with rival Sega, calling on the former platform holder to reopen merger talks rather than proceeding with its currently planned merge with gambling machine manufacturer Sammy.

According to the Japanese financial press, Namco has proposed a deal which would see the two companies merging early in 2004, with Sega being the surviving entity on the stock markets.

A merger between the two would create the fifth largest publisher in Japan, with annual sales of around 350 billion Yen (€2.7 billion) - representing a 10 per cent share of the home videogame market, and a 30 per cent share of the smaller arcade game market.

The aggressive move by Namco of making these merger talks public is seen by some commentators as proof that all is indeed not well with Sega's currently planned merger with Sammy, which is due to take effect in October. Although this merger would give Sega a very secure financial base, it has seen significant opposition from investors, and is thought to be opposed by some senior board members as well.

Namco's play appears to be based on making the news of a possible Sega merger public in order to gauge investor and analyst opinion; and so far the response has been largely positive, with shares in both Namco and Sega making gains on the Tokyo stock exchange today following the news. In contrast, the news of the Sammy merger pushed shares of both Sega and Sammy to record lows.

Sega said it is looking at Namco's proposal but no has not set a deadline for a decision. The initial round of merger talks between the two companies began last year, but were suspended at Sega's request.

Earlier this month, two comparably sized Japanese publishers, Square and Enix, completed their merger plans and became a single entity, in a move which was broadly welcomed by investors and market commentators alike.

Closer to home, Sega Europe has commented that the ongoing merger talks in Japan have no impact on its business, with operations remaining unaffected.