Why Microsoft Doesn't Want EA

REDMOND, Wash. (TheStreet) -- So, Microsoft(MSFT Quote) says that it has no plans to buy video game maker Electronic Arts(ERTS Quote), ending months of speculation that the two firms were preparing to ride off into the sunset together.

The news, however, is hardly a bolt out of the blue. Industry observers had already warned that the deal would be more trouble than it is worth, particularly given EA's close relationship with Microsoft rivals Sony(SNE Quote) and Nintendo.

"It makes no sense for one of the big hardware manufacturers to acquire one of the big software manufacturers," Todd Greenwald, senior analyst at Signal Hill Capital Group, told TheStreet late Wednesday. "There's no way that Microsoft is going to develop games for the PS3 or the Nintendo Wii."

With more than 50% of EA's revenue coming from Sony and Nintendo, an acquisition would have caused turmoil in the gaming sector, he added, explaining that it could also have raised antitrust concerns.

A Reuters report, citing information from traders, circulated Wednesday saying the software giant was interested in buying EA, the publisher of the Madden, Medal of Honor and FIFA video game series.

The rumor forced EA shares up Wednesday, although they retreated in pre-market trading Thursday, falling 43 cents, or 2.17%, to $19.40.

Microsoft shares rose 18 cents, or 0.70%, to $25.89 in pre-market trading. EA is not the only video game maker that has been attracting M&A chatter this week. Acquisition speculation has also swirled around THQ(THQ Quote), publisher of the UFC 2009 Undisputed game, with Time Warner(TWX Quote) and Viacom(VIA Quote) mentioned in the press as possible purchasers.