Alphabet continues corporate restructure
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Alphabet continues corporate restructure

Google made big news when it restructured itself into Alphabet back in 2015. The rationale was simple: Google had become a huge, complicated, mess – and that made it harder to manage, and less transparent. This was bad for business, and bad for the company’s share price. Alphabet was designed to add clarity to reporting, in part, pacifying investors who wanted an easily digestible picture of what was making money, and what was losing it. And the scheme largely delivered as promised, thanks to the efforts of Ruth Porat and others. Now, that plan is continuing with the formation of a new holding company: XXVI Holdings Inc.

Alphabet’s share price is up by 14% so far this year

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SOURCE: Yahoo Finance

XXVI – so named for the 26 letters of the alphabet as expressed in Roman numerals – will contain Alphabet’s famous “other bets” businesses. That means businesses like Nest and Verily (formerly Google Life Sciences) will have their own space to run, legally and financially separate from Alphabet’s core constituents.

The reason for the split is pretty simple to understand: Google makes shedloads of money; other bets don’t (at least, not yet). By forming a limited liability structure around these less financially impressive businesses, it isolates the core businesses from any potential fallout. Dana Hobart, a litigator with the Buchalter law firm in Los Angeles, explained it thusly:

“By separating them, it allows the parent company to limit the exposure of the various obligations of the LLCs. For example, if one of the LLCs has its own debt, only that LLC will end up being responsible for payment of that debt.”

This is an important fact when you consider that Google was worth around 99% of Alphabet’s revenue last year. In the filing, Alphabet explained what it hoped to gain from the creation of XXVI:

“As a result of the corporate reorganization, Alphabet and Google will be able to operate in a more efficient, economical, and transparent manner, allowing the companies to concentrate on their revenue generating activities.”

Disclosure

Dominion holds Alphabet in its Global Trends Ecommerce Fund.


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