These days, hiring expensive corporate lawyers doesn’t prevent monumental errors to occur.
Take Uber, Lyft, DoorDash and other gig companies, which spent USD 225 millions to pass Prop 22, a worker misclassification law, only to have the law struck down because of a careless drafting error.
Or take the latest Microsoft ’leaks’, where they accidentaly uploaded a trove of confidential documents in their battle with the FTC.
We learned a few delightful revelations from these leaks, including plans about a mid-life refresh of the Xbox line, a new controllers, and a next-gen Xbox. We also learned that they completely misjudged Baldur’s Gate 3’s popularity. The leaked material provide delightful tidbits for the gaming industry to chat and speculate.
What’s more interesting tough is the piece around Microsoft plans to buy Valve and Nintendo. The fact they they’re looking to buy direct competitors is not surpising in itself. Rather, what’s interesting is how they’re thinking about it, and the tactics behind.
Now, as part of my job I’m privvy to these kinds of dealings. But here there is no confidentiality agreement at play, so we all get to see how corporate power really plays out in the background. You can read the full email here.
First, Microsoft Gaming CEO Phil Spencer comments on the fact that Nintendo’s Board of Directors is not interested in growth or profit maximization. This ties back to my observation that Japanese companies are more immune than most from the obsession of maximizing shareholder value:
“The unfortunate (or fortunate for Nintendo) situation is that Nintendo is sitting on a big pile of cash, they have a [board of directors] that until recently has not pushed for further increases in market growth or stock appreciation.” Phil Spencer
Next comes the juicy piece. Phil Spencer doesn’t think an hostile takeover would be a good move (I agree). So instead, he relies on his friend and former colleague who now runs an investment company, ValueAct. ValueAct is acquiring Nintendo shares, presumably up to the point where they will be able to influence the BoD and their willingness to consider a merger:
“I say “until recently” as our former MS BoD member ValueAct has been heavily acquiring shares of Nintendo and I’ve kept in touch with [ValueAct CEO] Mason Morfit as he’s been acquiring. It’s likely he will be pushing for more from Nintendo stock which could create opportunities for us. Without that catalyst I don’t see an angle to a near term mutually agreeable merger.” Phil Spencer
This is an almost textbook example of Capital as Power: Rich and powerful friends conniving to engineer the financial takeover of a rival company.
Finally, while Phil doesn’t elaborate on the strategic rationale of buying Nintendo (or Valve), he does mention that
“Getting Nintendo would be a career moment.” Phil Spencer
And this is another crux of the matter. Many M&As happen not because of any strategic rationale, but because they increase the power of their architects. Between individual egos and financial incentives, it is always better to manager more people. No wonder then that more than 50% of all mergers and acquisitions end up not creating any value.
