The Rare development groups were starting to unravel during the time with the Gamecube but the major developers didn't leave until Rare was sold. All Microsoft got out of the deal with the IPs and some of the minor developers. Nintendo didn't want to invest in Rare because as said the development teams where not producing like they did during the N64 days. And Nintendo seen that so they decided to invest elsewhere. Even if Nintendo decided to buy them, I think the developers would have still left.
But the question would be who would of handled the transition better. About at the same time Nintendo had their hands full with the then under-performing Retro whose management was just pissing money away. So I think the question came down to which studio had a better future. Rare who they would of probably lost all the talent anyway or Retro which had a high chance that the talent would stay once Nintendo booted the management.
