Microsoft’s ongoing Xbox restructuring is continuing to reveal just how much has changed behind the scenes. A new report claims that Undead Labs, the studio behind State of Decay 3, was once expected to be acquired by UK developer Splash Damage before the proposed deal ultimately collapsed.
The information comes from Christopher Dring of The Game Business, who reports that Undead Labs was among the Xbox-owned studios being prepared for a change in ownership as Microsoft works to reduce the size of its first-party organization.
Splash Damage Deal Reportedly Fell Apart
According to Dring, Splash Damage was at one point pursuing an acquisition of Undead Labs. The UK developer is known for projects including Gears Tactics and Enemy Territory: Quake Wars and is backed by Emona Capital.
However, the acquisition reportedly never reached completion.
Microsoft eventually announced plans to return Undead Labs to independent ownership alongside Compulsion Games and Double Fine Productions. Rather than remaining part of Xbox's first-party lineup, the three studios are being separated from Microsoft as part of the company's broader restructuring.
Undead Labs' departure is particularly notable because the studio is currently developing State of Decay 3, one of Xbox's previously announced first-party projects.
Ninja Theory Also Struggled to Find a Buyer
Undead Labs wasn't the only studio that reportedly attracted potential buyers without completing a deal.
Xbox CCO Matt Booty previously confirmed that Microsoft had explored multiple possibilities for Ninja Theory. Dring claims that two potential buyers examined the Hellblade developer, but neither acquisition moved forward.
According to investors cited by Dring, the size and cost of Ninja Theory's team made the studio more difficult to acquire.
For now, Ninja Theory remains under Xbox's ownership while a consultation period continues under UK employment regulations. Microsoft is reportedly still looking for a potential buyer during that process.
The studio is also continuing work on its next Senua project, which has reportedly been described internally as a significant progression beyond Senua's Saga: Hellblade II.
Xbox's Studio Restructuring Continues
The changes affecting Undead Labs and Ninja Theory are part of a much larger Xbox restructuring that has already resulted in thousands of job cuts and significant changes to Microsoft's studio organization.
Compulsion Games, Double Fine, and Undead Labs are being returned to independent status, while Ninja Theory remains in consultation as Microsoft continues exploring its options.
Xbox has also announced another 268 job cuts as the restructuring progresses. Several major studios and franchises have been reorganized as part of the process.
Activision is taking responsibility for the Halo franchise, along with World’s Edge and Rare. Obsidian Entertainment has been moved under Bethesda, while Turn 10 Studios is being merged with Playground Games.
What Happens to State of Decay 3?
The biggest question for Undead Labs is how the studio's changing ownership situation could affect State of Decay 3.
Microsoft has previously indicated that the game remains in development, but the reported Splash Damage acquisition suggests that Xbox had been exploring multiple ways to change the game's development and ownership structure.
There is currently no confirmation that the failed acquisition has changed the development plans for State of Decay 3. For now, Undead Labs' future ownership remains an important piece of Xbox's ongoing restructuring.
The situation also highlights how far Microsoft's current reset has reached, with studios, franchises, and development teams being reorganized across nearly every part of the Xbox business.