Japanese game software makers Square Co Ltd and Enix Corp said on Tuesday they planned to merge in April to pool resources and technology to allow them to better compete in the rapidly changing video game industry.

The deal would be worth about 88.79 billion yen ($727 million) at current share prices.

Under the deal, one Square share will be exchanged for 0.81 share in Enix. Enix will issue 48.76 million new shares to swap existing outstanding shares in Square.

Square shares were up 8.28 percent at 2,040 at 0434 GMT. Enix shares were untraded at 1,821 yen with bids at 2,045.

Japanese video game software makers are facing rising development costs to create new games for advanced gaming systems in a heavily saturated domestic market.

Enix, known for its blockbuster Dragon Quest" games, and Square, creator of hit "Final Fantasy" role-playing games, enjoy solid sales from these million-seller titles but they also make profits vulnerable to sudden shifts in demand.

"In order to defy stiff competition in the game market and to survive for a long term, we thought it would be the best to join our forces," Enix director Tatsuo Tomiyama told Reuters.

Square, which lost 16.6 billion yen after an unsuccessful foray into movie-making last year, is now owned 18.6 percent by Sony Corp 6758.T , which makes the powerful PlayStation 2 game system.

Square spokesman Hideki Tsuchiya said the game creator expected to win approval for the merger from shareholders including Sony as the two companies have little duplication in their operations and the merger was expected to create synergy.

Enix and Square, along with another gamemaker, Namco, agreed last year to collaborate on operations.

The company officials said the latest deal would not include Namco.