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JEMC said:

Yes, it could, but what else could have they done?

The Stamper brothers decided they had enough and sold their shares of Rare (51%) to MSoft, so Nintendo's only other option was to sell the other 49% they had. I mean, no one can really expect a first party to share a studio with another first party.

The problem is that Nintendo didn't try hard enough to find or create a comparable studio after that.

Pretty sure they offered it to Nintendo first ad they didn't take it.