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Why You Should Never Expect Alphabet to Break Itself Up

Google Rises After Creating Holding Company Called AlphabetGoogle Rises After Creating Holding Company Called Alphabet
To buy, or not to buy...Photograph by Bloomberg via Getty Images

Breaking up a company with too much on its plate is one popular way to unlock value for shareholders. Xerox (XRX), for example, plans to become two companies by the end of 2016. Yahoo (YHOO) is undergoing a breakup and sale. And Pfizer has been (PFE) flirting with the idea of a split for years.

But that’s not going to happen with the second-largest public company by market cap—Google’s parent, Alphabet (GOOGL)—at least not according executive chairman Eric Schmidt.

When asked during Bloomberg’s Breakaway Summit on Wednesday whether the multifaceted company with a plethora of projects ranging from health care to smart cities would consider a split, Schmidt was quite clear.

“The answer is never,” he said. “You never say never, but I think it’s about as unlikely as anything I imagine.”

In the summer of 2015, Google decided to form a parent company called Alphabet and set a variety of projects including Google (which would be in charge of its internet franchise), Fiber, Verily, and Nest beneath it. The move effectively divided several projects from Google, resulting in a slimmer Internet business. The “split” also allowed more management scale, so that each subsidiary could run independently with its own budget and goals.

This new model makes all the difference, Schmidt said.

 

“Out architecture allows for expansion,” he continued. “The model is incredibly expandable, and the CEOs are highly independent and heavily incentivized to deliver real value and shareholder value, and I don’t see any reason to break it up.”

Schmidt has previously said that Alphabet plans to continue adding to its portfolio.

“After 26, we’re going to, probably, transcendental numbers,” he said in October at the Virtuous Circle conference in California, according to Re/code. Schmidt also noted that he had met with the CEOs of proposed companies.