Square Enix, the Tokyo video games group behind the long-running Final Fantasy series, has made an 11 billion yen (£56 million) bid for control of Tecmo in a deal that is expected to trigger a wave of consolidation in the Japanese games industry.

A merger of Square and Tecmo would unite a company famous for complicated, immersive role-play titles with a smaller rival whose games focus chiefly on ninjas, bare-chested street fighters and girls in bikinis.

Square hinted that the proposed deal could turn hostile if the Tecmo board did not accept the offer, adding that consolidation might be the only means of ensuring growth. Industry analysts believe that the surprise offer, which follows the unexpected resignation of the Tecmo president last week, will unleash a bidding war within the sector.

Tecmo’s development team, responsible for some of the most critically acclaimed titles in gaming, would be attractive to a number of Japanese and overseas businesses that are seeking to enhance their access to new games.

Japanese games makers used to dominate the global scene, but have lost ground gradually to American and European competitors. They continue to suffer despite the global popularity of games consoles, such as the Nintendo Wii and the Sony PlayStation Portable.

Although it is a relatively small deal, analysts said that the bid “detonates a time bomb” in the Japanese video games industry. It has been struggling to cope with the harsh economics of software development and the expense of picking sides in the hardware industry’s console war.

The recent arrival of a new generation of consoles has injected a potent measure of competition into the games industry, which is so strong that Nintendo raised its profit forecast by 26 per cent. Sales of its Wii home console and DS handhelds mean that the company expects profits to rise by 60 per cent on last year to Y410 billion.

As he announced his company’s offer for Tecmo, Yoichi Wada, the Square Enix president, acknowledged that Japanese prospects were at risk. He said: “The scale and growth potential of the games industry is huge, but the Japanese games industry is standing at the crossroads, uncertain whether the country can stay at the core of the global industry or not.”

Times Recommends

• Equitable Life halts £7bn sale on market turmoil
• Potential buyers emerge to save Woolworths staff
• Terrorist attacks close Bombay Stock Exchange