Why Japan Should Sell Nintendo?

(CTN NEWS) – Contemplating the sale of one of its most prized assets has the potential to bring about a profound transformation for the nation.

Several months into the pandemic, when much of the world was gripped by boredom and lockdown, contemplating the purchase of Animal Crossing: New Horizons, an enthusiastic and growth-focused Microsoft was considering the acquisition of Nintendo, the gaming company.

Nintendo? The seemingly unacquirable purveyor of enchantment? Asia’s most potent emissary of cultural influence and Japan’s closely guarded treasure trove of intellectual property?

It may sound irrational, but it’s a kind of audacity that could potentially offer greater benefits to Japan than it’s willing to acknowledge.

Japan should entertain the idea of selling Nintendo, not as a realistic proposition, but rather as an intellectual exercise and a jolt to its sensibilities.

The sheer unthinkability of such a sale, the dread associated with letting go of a national treasure, underscores the value of this contemplation for the more understated realms of corporate distinction.

The existence of Microsoft’s interest in acquiring the prolific Kyoto-based birthplace of iconic franchises like Super Mario, Zelda, and Donkey Kong came to light briefly last month when documents related to the tech giant’s legal dispute with the Federal Trade Commission concerning the proposed $75 billion acquisition of Activision Blizzard were leaked online.

Within this leaked archive (although subsequently removed), there were internal emails dating back to 2020 exchanged between various high-ranking Microsoft executives and Phil Spencer, the CEO of the company’s games division and the commander-in-chief of its console rivalry with Sony.

In these emails, Spencer boldly declared, “Nintendo is THE prime asset for us,” disclosing that he had engaged in numerous discussions with Nintendo’s top brass about the potential for closer collaboration with Microsoft.

Spencer also acknowledged that there was no evident imminent catalyst to initiate a sales process, and pursuing a hostile acquisition approach would be impractical.

Nevertheless, he believed that such a deal would constitute a pivotal “career moment,” and if any U.S. company were to have a chance at joining forces with Nintendo, it would indeed be Microsoft.

It’s indeed a bold assertion, especially considering the potential interest from other industry giants.

Nintendo possesses some of the most valuable entertainment intellectual properties globally, such as Pokemon and Mario, rivaled only by Disney’s ownership of iconic franchises like Mickey Mouse, Marvel, and Star Wars.

In an entertainment landscape constantly pursuing deeper immersion, Nintendo stands as a masterful creator of immersive worlds.

Most importantly, it represents a remarkable facet of Japanese culture, highlighting the nation’s extraordinary ability to captivate audiences on a global stage.

Whether you’re operating within the realms of video games, consumer technology, or the broader entertainment industry, Nintendo should sit prominently atop your list of potential acquisitions.

This is especially true in light of recent successes, like The Super Mario Bros Movie grossing $1.36 billion at the global box office and Zelda: Tears of the Kingdom selling a staggering 18.5 million copies within its initial two months of release to players on the seven-year-old Switch console.

However, Nintendo resides within a stock market that has often lacked enthusiasm for much of the past three decades.

Despite being heavily laden with valuable intellectual property and boasting significant profitability, Nintendo’s market capitalization stands at $55 billion in dollar terms.

To put this into perspective, it’s approximately $20 billion less than what Microsoft is seeking to pay for its acquisition of Activision.

Japanese companies, in general, aren’t typically priced as attractive acquisition targets, neither by domestic nor foreign purchasers.

Nintendo, with a substantial ownership presence from the founding family and devoted investors, exemplifies this trend.

There are two compelling reasons why, even though it’s challenging to envision the path to such an event, a potential sale of Nintendo could be transformative.

Firstly, such a sale might serve as a catalyst to persuade Japanese companies that have traditionally been resistant to consolidation to consider pursuing scale and protection through mergers.

The first reason is that a potential sale of Nintendo would bring about a realization in Japan about how undervalued many of its cherished assets truly are.

It would highlight that numerous smaller assets are being sold at bargain prices to private equity firms and other buyers. In this context, Microsoft would just be one of the many possible acquirers.

One can easily envision companies like Disney or Apple entering the picture, with Google and Sony following suit, making the valuation of the Activision deal appear quite modest in comparison.

However, the more significant reason lies in Japan‘s potential need for a transformative moment akin to what it initiated in the United States in 1989 when Sony acquired Columbia Pictures.

The audacious and ambitious nature of that acquisition disrupted not only Hollywood but also contributed significantly to Japan’s sense of accomplishment and innovation.

Disruption is not typically something a company or market desires, but there’s a growing concern that Japan’s stock market might have limited its options to the point where disruption becomes a necessity.

Until this point is reached, it may be beneficial for Japan to consider the positive impact a disruptive sale of Nintendo could have on its overall landscape.

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