Nintendo said in a statement
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But Peter MacDougall, executive vice president at Nintendo of America, confirmed to CNET News.com that the sale was part of Rare's acquisition by Microsoft, which now owns Nintendo's 49 percent stake and Rare's majority share.
"The entire company has been sold to Microsoft," he said.
Microsoft has not announced the Rare purchase, and a company representative declined to comment on the deal. The acquisition has been the subject of numerous reports, estimating the buy at anywhere from $400 million to $540 million.
Schelley Olhava, an analyst for research firm IDC, said the type of family-friendly games Rare creates are exactly what Microsoft needs tothe appeal of the Xbox beyond hardcore gamers.
"They need to get into the mass market," she said. "Rare has a reputation for developing very solid, high-quality franchises, something that's been really lacking for the Xbox...Rare is very good at developing characters; they made Donkey Kong what it is today."
Nintendo minimized the effect of the sale, saying Rare-developed titles only accounted for 1.5 percent of Nintendo's worldwide software sales during the 2002 fiscal year.
"Looking at the company's recent track record, it became clear that its value to the future of Nintendo would be limited," MacDougall said in the statement. "In other words, we passed on this opportunity for very good business reasons."
Nintendo said it will retain all rights to Rare franchises such as Donkey Kong, Star Fox and Diddy Kong.
"Those properties are still owned by Nintendo, and we will continue to make new games based on them," MacDougall told News.com.
P.J. McNealy, an analyst for research firm Gartner, said that the deal will mean a delayed payoff for Microsoft.
"It's a much less appealing deal for Microsoft without the Donkey Kong franchise," he said. "It makes it more of a long-term investment. It's possible the goal is really to build up a portfolio for the later years of the Xbox, when they're going to need to appeal to the kiddie market even more."