If Microsoft was paying for development then they own all the assets and code. The game isn't going to get made without their say-so.
If so, then it's basically the same situation as with Bayonetta 2, except Microsoft doesn't need money like Sega did. To the contrary, the amount lost is a drop in the bucket to Microsoft, who has a history of buying start-ups and budding technology companies just to shut them down. I don't doubt they'd rather eat that loss rather than have Sony benefit from it.