Don’t Worry, Microsoft Probably Won’t Buy Nintendo – Here’s Why

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Image: Nintendo Life

With the unprecedented news this week that Microsoft is beginning the process to acquires Activision Blizzard for under $70 billion, there’s been a lot of talk about what the company might do next. The possibility is Not much in the next 12-18 months; as with the Bethesda deal, the process will have legal hurdles to overcome and in this case Activision Blizzard shareholders will need to agree (they probably will); any challenge to the takeover is cleared will still cause delays. Even if it goes completely smoothly, it will take time.

A topic that also surfaced in yesterday’s rounds was whether Microsoft could target Nintendo again. It famously did this 20 years ago and was laughed out of the room, and we suggested in an editorial yesterday That’s a repeatable outcome. Still, maybe it’s worth the expansion why Microsoft taking over Nintendo is extremely unlikely.

The corporate culture and law are quite different in Japan, creating additional drag and complexity for acquisitions of these companies.

One argument to be made is that, prior to the takeover, Activision Blizzard’s market capitalization was in the same region as Nintendo – remember, the company wasn’t just Call of Duty and other console gaming IPs, but also has a sizable mobile business. So if Microsoft can make the move, why not Nintendo? For one thing, Microsoft chose a smart time – from an investment standpoint – to jump in, with Activision Blizzard behind the underperformance. Call of Duty: Vanguard (by IP’s high standards), and more notably a year of courts and extremely damaging charges about the corporate culture and its conduct. If there’s one point to trying to acquire a giant corporation for a modest percentage of the cost, this is it.

But that’s not the only big reason a Microsoft takeover of Nintendo is unlikely. First of all, it can be said that Microsoft’s main goals – in gaming and other business areas – are mainly other American businesses. The corporate culture and law are quite different in Japan, creating additional drag and complexity for acquisitions of these companies. Maybe it will happen more, but the idea of ​​buy-and-sell is still relatively new and fraught with uncertainty in Japan.

Of course, mergers and acquisitions still happen, although many are internal to the country. For example, there are some domestic and foreign transactions Sony acquires Crunchyroll, but large-scale corporate takeovers in which a large American or European company acquires a Japanese company are extremely rare. Part of this is due to fixed cultures and practices – Japanese companies, for example, often have ‘cross-ownership’ between business partners. This may include, for example, the banks with which the company does business. As you can see in List of Nintendo’s Top 10 Most Recent Shareholders, below, with the largest being ‘Trust Bank’ (essentially an investment management business), Nintendo’s holdings reflect a combination of these investments and cross-holdings.

Top Nintendo Shareholder 10.JPG
Image: Nintendo

That said, there is a shift underway in Japan that could open the door to more takeovers of foreign deals in the future, even those that aren’t required. This is nicely summed up in this M&A Discovery article, as it points to a number of key cases and changes that are opening up for Japanese business to more global interventions. What’s interesting is that it highlights some of the things we’ve seen from Nintendo as it adjusts to new regulations and requirements – more transparency in its dealings, openness to shareholder requirements and overseas expansion and independent board members. All these changes have, without a doubt, opened up the Japanese corporate arena.

Nintendo’s IP is one of the highest in the industry, and the company has shown no sign of opening for sale.

So, if sand is slowly changing in Japanese corporate culture, does it give Microsoft a ‘better chance’ than it did 20 years ago? Theoretically yes, but beyond the remaining challenges of initiating a takeover of that size in Japan, there is the question of valuation. At this point, Nintendo’s industry value includes a user base in the tens of millions, not only in terms of online customers but also in the hardware business. Nintendo’s IP is one of the highest in the industry, and the company has shown no sign of opening for sale. In every shareholder meeting there are questions about the company’s plans, how the company remains successful, but also a lot of satisfaction and ticks. Nintendo Directors are regularly nominated and accepted with little drama; Business is strong.

While Microsoft will join every other game company in desiring Nintendo’s iconic franchise, the deal won’t mean anything beyond that. Microsoft is betting big on console, PC and cloud combined to make gaming available to ‘everyone’, with streaming to phones and tablets being a big part of that. The Switch’s combined hardware nature doesn’t clearly match that, especially in light of the dizzying amounts of money even needed to efforts acquired by Nintendo.

It all seems pretty fanciful. Admittedly, the idea of ​​Microsoft acquiring Activision Blizzard also seems unlikely, but spending that acquisition along with all The factors that make buying Nintendo more difficult suggest that excited talk about the mother of all acquisitions is just that – excited talk.

We certainly wouldn’t lose sleep over the prospect at this time, under any circumstances.

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