M$ tried to buy Nintendo

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Originally posted by Stone
Man... if their cash reserve is in the $6-$10 billion range and they're a $25 billion company - that's an absurd amount of money to hold in bank accounts.

Nintendo thinks that their money will do more in a bank than it will in Nintendo itself - which means that Nintendo doesn't think it has any growth potential, doesn't see anything left for it in the video game business.

The only reason Nintendo hasn't sold, if they're keeping a cash reserve of that size, is because Yamauchi's too stubborn to get rid of it - when the old man dies, the company's going to be sold to someone, Microsoft or Sony, that believes they can grow Nintendo.

Literally, if Nintendo's got 25% of their worth tied up in cash, I guarantee Nintendo will be sold by either 1.) next generation or 2.) Yamauchi's death.

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Having that much money in the bank only gaurantees more financial success for the company. They defineatly won't have a problem with their stock value taking a nose dive. Look at Enron. They posted false cash in bank, and paid in the long run. Nintendo is a financialy strong company, that only a fool would part with.

I'm pretty sure the talks went a bit like this:

GATES: I'll offer you $25 billion for your company.

YAMAUCHI: I have a better idea, you may acquire my company if you can defeat me in a Greco-Roman wrestling match, ethier clear pin or tap out.

GATES: Are you nuts? I'm not wrestling you...you're like 90 years old!!!

YAMAUCHI: Or is it you fear me? Do you think my employees are scared of me because I promote competition among them and look pissed all the time? I've eaten three bowls of rice a day for seventy years, can crush a Celica with my abs, and control children with a yellow rat. *rips shirt off, grabs mouthguard out of desk drawer.

And the rest is... *-neo

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Originally posted by gamevet



Having that much money in the bank only gaurantees more financial success for the company. They defineatly won't have a problem with their stock value taking a nose dive. Look at Enron. They posted false cash in bank, and paid in the long run. Nintendo is a financialy strong company, that only a fool would part with.

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There's a difference between being secure and being successful. Right, Nintendo's business strategy is completely different from the one that ran Enron and nearly every internet business into the ground. Nintendo's cash ratio is insane, they could pay off all of their liabilities with cash easily, at least a few times over, so on.

Nintendo won't go bankrupt.

Nintendo also won't succeed. I looked up Nintendo's annual statement for 2001 - they've got $8 billion in total assets, with over $6 billion of that carried in cash. Compare that to Microsoft, with $60 billion total assets and $4 billion in cash, or Sony, with $30 billion total assets and $4 billion in cash.

Nintendo is making the choice to keep 75% of their assets in the bank, instead of using that cash to purchase revenue-generating/growth-generating assets. Nintendo doesn't think it can grow faster than the rate the bank pays it interest at. What that means is that Nintendo's fundamentally dead as a company. It will sit there, producing cash (profit) at a steady level for the near future, but it's not going to get any bigger with the current management team - if it had any growth potential, then Nintendo would be investing that money instead of holding it in cash.

But, wait, is the video game industry essentially dead? Is it the kind of business where growth potential is so low that it makes more sense to invest retained earnings in a bank than in assets that would help you grow? No, of course not - unless Microsoft has some really shitty analysts. Microsoft thinks it can grow its video game business faster than the bank's rate of interest, or it wouldn't have gotten into the video game market.



So, eventually, Nintendo will be bought out by a company with a management team that thinks it can take Nintendo's accumulated goodwill and intellectual property and use that to create real growth. The only reason Nintendo hasn't been bought out already is because Yamauchi's too stubborn to sell. When Yamauchi dies, the company will be sold to a more courageous management team unless 1.) the video game market slows down/freezes and makes Nintendo's ultraconservative strategy look smart or 2.) Nintendo's new management is as stupid and as conservative as Yamauchi.

Very good point Stone. While individuals my benefit from holding on to cash, what good does it really do companies in the long run. Investors like to see active companies that are constantly growing. If a company stagnates, it come potentially prove bad in the long run and stock holders may consider taking their money elsewhere.

Business wise, I think Nintendo does feel that the industry is currently in a dead state of sorts. Yamauchi (or Miyomoto) had even predicted that a second crash was going to happen a while back. I strongly don't feel that Nintendo has strong faith in the console industry. In fact GBA is still their main driving force.

What does all of this mean in the end? I don't know, but it might be best for Nitendo to be bought if thy can come up with a way to grow themselves.

You guys have to remember, selling out isn't a bad thing. It's actually really good (lots and lots and lots of money if you own the company that's being sold). Selling out is the whole point of owning a business. You start the business/invest in the business, hold onto your investment, let it grow, and then sell and make money, and go build a money bin and swim around in all of the cash you now have.

I'm going to use "Microsoft/Sony" as my term for the potential buyer here, not because I'm some sort of weird combined PS2 Xbox fanboy that hates Nintendo, but because one or the other is the most likely candidate to buy Nintendo.

So remember, the owners selling is not evidence that a company is failing, or even doing badly. It just means that a new management team thinks it can do better with the resources available to the company.

Say Nintendo's growing at 2%.
Microsoft/Sony thinks it can grow it, the company's value, at 10%.

The two companies talk, and they come up with a price that hits somewhere in the middle, the correct price for a 6% investment.

Nintendo's owners sell out and the owners feel like they made out like bandits because they got more than the company (growing at 2%) was worth to them. They're fabulously rich for the rest of their life, they don't have to come to work anymore, they can start new businesses, whatever.

Microsoft or Sony buys the company, and they feel like they got a great deal because they bought a company that can grow at 10% for the cash value of a 6%-growth investment stretched over time. Everyone wins. Yay capitalism!

Once again Stone, good post. :)

*considers reviewing some econ. and finance after the semester is over*

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Originally posted by Stone



There's a difference between being secure and being successful. Right, Nintendo's business strategy is completely different from the one that ran Enron and nearly every internet business into the ground. Nintendo's cash ratio is insane, they could pay off all of their liabilities with cash easily, at least a few times over, so on.

Nintendo won't go bankrupt.

Nintendo also won't succeed. I looked up Nintendo's annual statement for 2001 - they've got $8 billion in total assets, with over $6 billion of that carried in cash. Compare that to Microsoft, with $60 billion total assets and $4 billion in cash, or Sony, with $30 billion total assets and $4 billion in cash.



Nintendo is making the choice to keep 75% of their assets in the bank, instead of using that cash to purchase revenue-generating/growth-generating assets. Nintendo doesn't think it can grow faster than the rate the bank pays it interest at. What that means is that Nintendo's fundamentally dead as a company. It will sit there, producing cash (profit) at a steady level for the near future, but it's not going to get any bigger with the current management team - if it had any growth potential, then Nintendo would be investing that money instead of holding it in cash.

But, wait, is the video game industry essentially dead? Is it the kind of business where growth potential is so low that it makes more sense to invest retained earnings in a bank than in assets that would help you grow? No, of course not - unless Microsoft has some really shitty analysts. Microsoft thinks it can grow its video game business faster than the bank's rate of interest, or it wouldn't have gotten into the video game market.



So, eventually, Nintendo will be bought out by a company with a management team that thinks it can take Nintendo's accumulated goodwill and intellectual property and use that to create real growth. The only reason Nintendo hasn't been bought out already is because Yamauchi's too stubborn to sell. When Yamauchi dies, the company will be sold to a more courageous management team unless 1.) the video game market slows down/freezes and makes Nintendo's ultraconservative strategy look smart or 2.) Nintendo's new management is as stupid and as conservative as Yamauchi.

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Well those conservative management tactics of Nintendo have kept them in business for over 60 years. Assets include unshipped product, future product design, and stock value.


Companies like Atari, 3DO, Sega and Apple took that kind of chance with their money, and look where it got them. It was'nt until Steve Jobs stepped back in for Apple, that the company started seeing marginal profits again. 3DO is lucky that a company like Matsushita saved their sorry asses, by paying a rediculous amount for the M2 technology.


Shigiru and company will take continue on with what made Nintendo a success in the first place. They have no need to sell the company, unless GameCube, Gameboy Advance, and future projects fail miserablely.

Hmmm...

Well, to accurately guage whether or not Nintendo's business practices are good in the long run, or even if they have always done business that way, we have to look at the history of the company and the market. Only then can we truely discuss the factor of the past. Even then it doesn't little to truely predict the future.

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Originally posted by Brotherman
Once again Stone, good post. :)

*considers reviewing some econ. and finance after the semester is over*

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Eheh, thanks man. I love this stuff, managerial accounting (what I understand of it). Accounting gets a bad rap.


Nintendo can keep operating for a long time, right, Gamevet. They're not doing anything wrong.

But, they're wasting their potential. Nintendo's a Ferrari F50 being driven by a 90-year old woman. A 90-year old woman can get everywhere she wants to go in a Ferrari F50, but why? Sell the F50, buy a cushy Lexus or something, and she can spend the $450,000 left over on hair treatments and sweaters for her dog.

Nintendo's way of operating worked when video games were a relatively small, self-contained business that didn't involve all that much competition. The status quo was all that mattered. As video games get even more of a big-business status, the 90-year old lady in the F50 is going to be pushed out so that F50 stops going to waste. It's just how business works, I think.

Yeah. I heard some similar things in my "Managerial Economics" class. It's really good stuff. Really got me to rethink things when to came to business.