Sandbox, a quantum computing start-up that's currently part of Alphabet's (GOOG 9.96%) (GOOGL 10.22%) "other bets" venture capital segment, is set to be spun off into its own private company. But little is known about the future spinoff, including whether, or how much, Alphabet will retain a stake in Sandbox.
In this clip from "The M&A Show" on Motley Fool Live, recorded on March 25, Motley Fool contributors Travis Hoium, Jason Hall, and Dan Caplinger discuss the recent news and what Alphabet's strategy could be with this and future "other bets" spinoffs.
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Dan Caplinger: The other thing being as you look at future 10-Ks, we'll be able to kind of see does Alphabet maintain its proportional stake or does it allow itself to become gradually diluted, indicating perhaps less confidence in Sandbox's being worthy of its full attention compared to the other deals it has under its corporate umbrella.
Jason Hall: I think it's worth noting, too, that Alphabet is a nearly $1.9 trillion company so even Sandbox being a massive success and going public at a $20, $30, $40, $50 billion market cap, it's a smaller per-share impact for Alphabet investors. I think that's really the big takeaway there is to remember that's become so big that some of these other bets have got to be enormously successful. And Alphabet should retain a pretty substantial ownership so that that per-share value carries over to shareholders.
Travis Hoium: Well, and it'll be interesting to see how they play that from both a disclosure standpoint and then what they do with their shares, how they monetize it. Because I think it is wise in some wise for them to say, "Hey, we can afford to invest in a bunch of these other bets." But if you just then allow these companies to spin out and dilute you to less and less value, then what are you doing with shareholder capital? I think that'll be really interesting dynamic to see long-term because they've got such a great core business, would they be better off just paying a dividend to shareholders or something like that? Rather than chasing all these things where they're not necessarily the best capital allocators in this market. But we'll see what exactly happens with that.
