Square deal fell through for Microsoft

A report in technology journal Red Herring by author Dean Takahashi has revealed that Microsoft attempted to buy out Sega and Square once again earlier this year, in a deal which would have cost the company over $1.8 billion. Negotiations between the companies collapsed just before E3, however, leaving Microsoft once again without the Japanese giants which have been on its acquisitions radar for several years. Microsoft previously attempted to purchase Sega in late 1999, but its advances were rejected as Sega wished to continue promoting its Dreamcast console. Square was also approached in 1999, but was firmly snubbed by then-CEO Hisashi Suzuki, who demanded $2.5 billion for a 40 per cent stake in the company - a sum higher than the entire market capitalisation of Square at the time. Last year, Sony acquired a 19 per cent stake in Square for $125 million. The latest negotiations were aimed at securing a deal which would have seen Microsoft buying a controlling stake in Sega, costing the company over $1.8 billion given the market value of Sega. This money would then have been used by Sega to purchase a controlling interest in rival software publisher/developer Square, in a knock-on effect which would have seen Microsoft take over two of the largest and most respected developers in Japan in a single move. It would certainly have been a crowning achievement for Microsoft to be able to announce such a deal at E3. However, it was not to be; Sega's interests do not align with Microsoft's at the moment, and although the company is still recovering from the debt built up during the Dreamcast era, it is now on a firmer financial footing than it has been for some years. In fact, Sega is now on the acquisition trail itself, with senior executives at the company confirming in recent weeks that it is seeking to purchase publishers and developers in the USA and Europe. Both Infogrames and THQ have been mentioned as possible targets following this statement. Dean Takahashi, who wrote the report in Red Herring, is the author of "Opening the Xbox", an in-depth history of the Xbox project at Microsoft. The Xbox has hit all of its sales targets comfortably, according to the latest financials to be released by Microsoft. The figures, which show the Redmond-based software company's profits soaring in the three months to June, show the Xbox selling 3.9 million units, which easily meets the targets set by the company. However, those targets are significantly revised; Microsoft had originally expected to sell 6 million consoles in the period.