Will Alphabet overcome the possible birth pangs of a parent sired by his child?

That child is the father of man is an age old aphorism. Google promoters Larry Page and Sergey Brin have however acted on the brooding aphorism by creating a parent for Google. A child can never be a witness to its parent’s birth – though it can be to his/her second or subsequent marriage – but Google would have this distinction. Done at the grim prospect of EU cracking down on Google and ordering it to break up or for other reasons mainly derisking Google, the fact is it is a unique denouement. A few months earlier investors had brought pressure to bear on General Electrics to hive off its GE Finance which they believed was acting as a drag on its profits ever since the US financial crisis of 2008 broke out.[caption id=“attachment_2386984” align=“alignleft” width=“380”]  Representational image. Reuters[/caption] In India too, demerger or hiving off is a rage, often for placating the feuding family members of family run concerns. The break up of the conglomerate Reliance Industries Ltd in 2004-05 immediately comes to one’s mind in this regard. Tata Consultancy Services (TCS) was hived off from Tata Sons Ltd so that it could go public, stand out and shine. Shine indeed it did after the demerger. TCS, experts believed, suffered from conglomerate discount. In any case Tata Sons could not go public being a family investment vehicle of the house of Tatas. Demerger can also be a prelude to takeover as was the case with Larsen and Toubro Ltd. Its cement division was coveted by Birlas but the Indian law permits amalgamation of only the lock, stock and barrel variety. In the event, Birlas could not cherry-pick L&T’s cement division. Their objective was achieved through a circuitous process – first hive off the cement division into a separate company and then merge it with Grasim Cements, an umbrella cement company of Birlas. The new company carved out on demerger is called the resultant company which now fends for itself by accessing the capital market. But Alphabet defies description, born of birth pangs, and bristles with numerous questions on financing. Creation of Alphabet, the holding company and the hiving off of Google ventures including life sciences company Calico, Sidewalk Labs, which is about improving city life, Google Ventures, which supports startups, Nest Labs, a home automation company, and Google X, which works on innovations like Google Glass and self-driving cars may be compendiously called demerger for want of a better term for the nonce but how will Alphabet raise its finance? Normally, the holding company is an existing company that seeks to grow or diversify through its subsidiaries by taking a majority stake – 51 percent – in them. Alternatively, a holding company right from the inception settles for investment and control role like Tata Sons Ltd or Pilani Investments of Birlas, with operating companies functioning independently. Both these models have a common feature – the holding company sires the subsidiaries. When a child sires its parent as is the case with the birth of Alphabet, there could be some problems. Would Alphabet have reserved in the charters of Google and other group companies the right to nominate directors in them and thus control them? Alternatively, would Alphabet mobilize enough funds as to be able to get controlling stakes in each one of these companies including Google? The first course would call for indulgence and thumbs up from subsidiaries’ shareholders which may not be difficult if they are convinced of the appropriateness of the course adopted by the Google promoters. The second would call for enormous mobilization of funds so they could be pumped into the subsidiaries to get controlling interests. This course may be resented by the shareholders of Google who might see in the move a sure dilution of the net worth and consequently the market value per share unless of course the funds infused find investment avenues and start yielding quick results. The devil always lies in the details but then Larry Page believes that if you are not doing crazy things you are wasting your life. Indeed Google has done many things out of the box. One wishes its siring of a parent too bears fruits.