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I can see why it could happen: They are both large game developers for the arcades and home consoles in Japan and worldwide. Namco are doing better in some areas of the market in Japan then Sega so it would help Sega if they merged. Likewise Sega have a strong international presence so it would help Namco if they merged.
Apparently here Namco confirm it: http://www.namco.co.jp/home/pr/20030417/ but it's in Japanese, so I wouldn't know.
> A comparison.
>
> www.geocities.com/gamcubewatch/semco.wav
>
> www.gecities.com/gamecubewatch/namga.wav
It refuses to find either.
www.geocities.com/gamcubewatch/semco.wav
www.gecities.com/gamecubewatch/namga.wav
> Semco sounds cooler.
But "Seeeeeemcoooo" sounds so wrong.
Try it. It just doesn't feel right like Namga.
> Oh and what are they going to be calling themselves afterwards?
Namga.
Imagine it at the start of a sonic game.
"Naaaaamgaaaaa".