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Initially the answer depended on who you asked, but now it seems to depend on who was told about the deal. On January 10th, Masafumi Miyamoto, Square's co-founder, ex-president and top shareholder, revealed the tenuous nature of the deal when he told Nihon Keizai Shimbun newspaper, "If the current ratio stands I will have to vote against the merger agreement at the next conference". The current ratio was Square 1 stock to .81 Enix stock. Square and Enix jointly responded that negotiations with Miyamoto would occur, but "under the precondition that the merger will be completed." Indeed negotiations succeeded, to the chagrin of some minority Enix stockholders, and now the ratio is .81 Square stock to 1 Enix stock. Advantage Square.
Yet underlying the media clamor of these top-level negotiations is dissatisfaction and a sense of betrayal at the employee level. Square and Enix failed to inform their designers of the merger until declaring it to the media. By informing the news media first, the two companies committed an error in communication protocol that alienated the corporate leadership from the body of employees. The perception among some game designers is that their companies have marginalized their worth, and some have threatened to leave the company. Although this will not affect the contractual agreement in the technical sense, clearly the threat of a brain drain is something the two companies' leadership will have to consider and ameliorate. Most likely this will manifest in the forms of concessions to the employees.
If key designers leave Enix and Square, it will lead to internal instability at an already turbulent time. Firstly, the loss of teamwork and cooperation that would result from a new lineup would negatively affect the quality of product, and by consequence its profitability. Secondly, as consoles increase in technological sophistication, so do the cost of software production, especially software of the magnitude of RPGs. This is in fact a primary motivation for Square to be bought out by Enix, whose financial reserves could sustain Square's increasingly costly projects. Thirdly, Square produces its software in house, making the stability of its lineup of designers incumbent to their quality and timely completion. Fourth, the Japanese population's increasing preference for online and especially cell-phone gamings, requires more money for both Square and Enix to finance new divisions for these new markets. This cannot be understated enough, especially when some cell phones offer with 2-D graphic capability sufficient to display any 2D Square or Enix RPG. Fifth, the backdrop for all of this activity is a decades long recession in Japan, compounded further by a general global recession. Such proposed mergers as the Square-Enix-Namco deal in which each company would buy 5% of each other's stock, and the 1998 founding of Square Co Ltd's US subsidiary, Square-Electronic Arts, are signs of an increasingly difficult market.
This leads to the last important point, which is that the storied history of Square's partnerships with other companies will be an important variable in the viability of this merger. Electronic Arts, Nintendo and Sony, whose indivifual profitability outweighs that of Square and Enix combined, have deals with Square that will be affected by the contract. Another issue will be the affects of the merger on the RPG makers US operations. Cloture and resolution will occur, but it remains to be seen how well off the companies will be after the merger is fully implemented. Opposition to the merger at both the corporate level and consumer level, the latter demonstrated by the numerous fan opinions circulating the net, seriously hinder the viability of the merger. Still, anything is possible, and we must remember that the higher the stakes, the higher the consequences. The fascinating effect of mergers is that they expose the company for what it is: a nexus of relationships. At this level, previously obscured dynamics are made visible to the public, giving us a greater understanding of the companies so dear to us.
More on this as it develops...
Joshua Hsieh remembers when it was hip to be square
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