Could Microsoft buy Nintendo? It’s an idea people throw around as a joke in the context of the video game industry reaching peak consolidation. But could that actually happen? Thanks to the enormous Xbox document leak this week, it turns out that some of the highest-ranking decision-makers at Xbox have mapped out what an acquisition might look like. Microsoft’s board of directors, including CEO Satya Nadella, has seen a full writeup of the particulars of a Microsoft buyout of Nintendo. But don’t get too excited about Master Chief and Mario sharing an owner anytime soon. Experts say Microsoft was merely doing its due diligence and that a Microsoft takeover of Nintendo is not much more than a pipe dream–though as with all things, you never know what might happen in the future.

What Did Phil Spencer Say?

In an email dated August 6, 2020, Spencer told Microsoft marketing executives Takeshi Numoto and Chris Capossela that Nintendo is “THE prime asset” for Microsoft in gaming. Spencer went on to say he has already had “numerous conversations” with Nintendo’s leadership team about a “tighter collaboration” between the two companies, and he believes that if any US company could convince Nintendo to sell, it would be Microsoft. But in the same email, Spencer said Nintendo would be unlikely to sell to Microsoft, at least at this point in time.

Spencer noted that Nintendo is “sitting on a big pile of cash” thanks in part to the breakout success of the Nintendo Switch. Indeed, when Spencer sent this email, Nintendo had more than $12 billion in cash on hand, a number that has grown higher since then. Spencer did note, however, that a former Microsoft board of directors member, Mason Morfit with the investment firm ValueAct, has been acquiring Nintendo shares, and said this could “create opportunities for us.” Exactly what these opportunities might be isn’t immediately clear, however.

However, Spencer said unless there was a “catalyst” to a sale, like some kind of involvement with Morfit, Spencer said there was little chance of Microsoft being able to make a deal. And a hostile takeover? Spencer said he doesn’t like the sound of that, either.

“I don’t see an angle to a near-term mutually agreeable merger of Nintendo and MS, and I don’t think a hostile action would be a good move, so we are playing the long game,” Spencer said.

Despite all of that, Spencer ended his email by saying that “getting Nintendo” would be a “career moment” for him. He also said he believes Nintendo selling to Microsoft would be a “good move for both companies.”

“It’s just taking a long time for Nintendo to see that their future exists off of their own hardware. A long time…,” Spencer said, adding a smiley face for effect.

Of Course Microsoft Wants To Buy Nintendo

As a publicly traded company, Microsoft is engaged in a pursuit of endless, exponential growth and driving more value to shareholders. Make no mistake: It’s about the money. It’s always about the money.

To achieve growth and to see the graphs go up and to the right, Microsoft needs to find more revenue opportunities, and buying a giant like Nintendo would seemingly help inspire confidence among stakeholders and investors that Microsoft would make more money over time. But could Microsoft actually buy Nintendo?

Mat Piscatella of Circana (formerly NPD) tells GameSpot that there is nothing special or out of the ordinary about Spencer’s email discussing a potential acquisition of Nintendo. Compiling reports about potential acquisition targets is just part of the job and not necessarily indicative of anything.

“M&A evaluations and conversations are a normal and everyday part of the business. Estimating the costs and opportunities of potential M&A is part of leadership’s due diligence,” Piscatella said. “That such conversations were happening is the least surprising bit of the information that was inadvertently released [in the leaked emails].”

Piscatella said Spencer and his team discussing a sale and compiling a “full writeup” for Microsoft’s board of directors is just a part of his job. In the event that buying Nintendo would ever become a legitimate possibility, Microsoft would need to be ready to act.

“Most of the time nothing would happen, nor would it be expected to. But you do it for those rare cases when something does make sense and would improve the company’s position. It’s just good business,” Piscatella said.

“This is really just business as usual” — Michael Pachter of Wedbush Securities on Phil Spencer’s email about looking at Nintendo for a potential acquisition

Michael Pachter of Wedbush Securities has a similar line of thinking. He told GameSpot that in the ’90s, when he was heading up business development for an oil company, he and his team put together M&A analysis documents for every competitor. In total, there were 50 or so on file at any given time. For Microsoft, Pachter said it’s just a good business practice to analyze the competition in this way, and that includes drawing up reports on potential acquisitions, even big, unexpected ones like Nintendo.

“I suspect that Microsoft has files prepared for all publishers, console makers, big independent studios and a handful of other companies (like Turtle Beach or Corsair). It’s not a surprise that the head of the Xbox division believed Nintendo to be the crown jewel in the acquisition landscape, and no surprise that he discussed this with co-workers. The reaction to the ‘leak’ is somehow negative, probably because people have such a blind love for Nintendo (myself included). This is really just business as usual,” Pachter said.

“Their Future Exists Off Of Their Own Hardware”

One of the juiciest parts of Spencer’s email came at the end, when he said Nintendo is taking “a long time” to realize that “their future exists off of their own hardware.” What it sounds like Spencer is saying here is that Nintendo is missing out on an opportunity to grow its own business by bringing its content to more people and platforms.

This is a bold claim to make (but not necessarily surprising to hear from Spencer, who has been criticized for being too confident). After all, Nintendo is making billions in revenue every year and the Switch regularly outsells Microsoft’s Xbox consoles in the US and globally. Nintendo currently sits in a position of strength, with billions of dollars in cash on hand and a new console reportedly coming out in 2024. Nintendo also owns a catalog of some of the best-known, most beloved, and commercially successful games ever with the likes of Mario, Zelda, Donkey Kong, and more. Microsoft, meanwhile, has spoken openly about its own struggles in its first-party games lineup. So of course Microsoft would want to buy Nintendo, but that doesn’t mean it’s a realistic or feasible possibility for the company. Spencer admits as much in his email, stating that Microsoft will instead look to play the “long game” and find success another way.

People have said for years that Nintendo should follow in Sega’s footsteps and get out of the hardware business and focus on making games exclusively for other consoles. But Nintendo seemingly would have no compelling reason to do this with the way the business is running now, moving from strength to strength across games and hardware. Nintendo has long made the case for its games and hardware needing to exist in symbiosis, and it’s bold of Spencer to believe Nintendo would want to shift things up at this stage in the game. Nintendo has sold 130 million Switch units, a figure no Xbox has ever come close to. Nintendo getting out of the hardware game would be a surprising shift.

Microsoft, of course, does not need Nintendo to see the kind of revenue uptick that it wants. Part of its growth strategy is buying Activision Blizzard for $68.7 billion, Microsoft’s biggest-ever buyout and the biggest of all time in video games. If the deal closes, as expected, Microsoft would take ownership of Call of Duty, Warcraft, Diablo, and other major franchises, studios, technology, and infrastructure–and the upside is seemingly enormous.

Market Growth

In the same email, Spencer noted that Nintendo’s board of directors has not “pushed for further increases in market growth or stock appreciation.” That began to change in 2020, though, thanks to a key investor buying up shares.

ValueAct began buying Nintendo shares in 2019 but significantly increased its stake in 2020, purchasing 2.6 million shares at a total cost of $1.1 billion, according to Reuters. This amounted to around a 2% stake in Nintendo, and the Mario company’s share price jumped after the news became public. A spokesperson for Nintendo said it is “engaged in a dialogue” with ValueAct, but declined to comment on what the two companies might have discussed.

According to the report, ValueAct is not seeking a seat on Nintendo’s board of directors but wants to work “behind the scenes” with Nintendo’s management team. The report said ValueAct and its partners, including Morfit, have supported the decisions that Nintendo president Shuntaro Furukawa has made over the years. Morfit could offer “relevant guidance and experience” to bolster Nintendo’s financial ambitions, using information and experience from his time on the Microsoft board, the report said. Spencer’s email suggests Morfit “will be pushing for more from Nintendo stock which could create opportunities for us.”

The key part of Spencer’s email centers around the fact that Nintendo doesn’t pursue growth as aggressively as other companies. That could be a regional distinction between the traditionally Western Microsoft vision and Nintendo’s own operational guidelines and expectations for growth. A commonly accepted idea is that Western giants like Microsoft are very beholden to shareholders and growth at all costs, and when layoffs are enacted, they can be perceived as a response to shareholder pressure to keep making profits every quarter. Nintendo, on the other hand, has historically balked at layoffs. In 2013, then-Nintendo president Satoru Iwata acknowledged that Nintendo’s business has its “ups and downs” every year. And while he said it would be ideal to make a profit every quarter and reward investors with gains to help keep a high share price, it isn’t always possible. Cutting staff for short-term profitability sake is a bad idea because it impacts employee morale and ends up having negative consequences, Iwata said. This is not the way of thinking most commonly associated with Western giants like Microsoft, which is laying off more than 10,000 people in 2023 in a bid to save money.

Some reacted to Spencer’s line about Nintendo’s perceived lack of interest in a Microsoft-level approach to “market growth and stock appreciation” as yet another example of the Western mindset that profits should be prioritized no matter the cost.

Don’t Bet On It, But Anything Could Happen

In the years since Spencer sent the email mentioning a potential buyout of Nintendo, the Mario company has seen record profits thanks to strong game releases like The Legend of Zelda: Tears of the Kingdom, ongoing Switch sales, and a bump thanks to the huge success of The Super Mario Bros. Movie. If the reports prove to be accurate, Nintendo will launch a new console in 2024. Success is never guaranteed–just look at the Wii U– but betting against Nintendo is rarely a good idea. This is all to say that Nintendo would seemingly have little motivation to either seek a buyer or be agreeable to a sale right now, although it’s unclear what pressure from investors like Morfit and ValueAct could have over time.

All of this said, anything is possible in the dynamic business world of media and entertainment. After all, who, prior to 2012, would have believed that Mickey Mouse and Luke Skywalker would share the same parent company before Disney bought Lucasfilm? And now The Simpsons, the same show that regularly roasted Disney with jokes and jabs, is now also part of the family. I wouldn’t bet on Master Chief and Mario teaming up anytime soon, but conventional wisdom says it cannot be counted out, either. After all, barring intervention from governments over antitrust concerns, media and entertainment consolidation will remain a very attractive option for investors, in video games and every other major industry.