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Google forms new holding company 'Alphabet', Page to be CEO

Google founder Larry Page will be the CEO of Alphabet while longtime Google executive Sundar Pichai will become CEO of Google's core business.

Agencies   San Francisco     Last Updated: August 11, 2015  | 14:41 IST
Google forms new holding company 'Alphabet', Page to be CEO
Google founder Larry Page said the new structure will provide more independence for divisions like Nest, which makes Internet-connected home appliances, and Calico, which is conducting cutting-edge health research. (Photo: Reuters)

Google Inc announced a surprise overhaul of its operating structure on Monday, creating a holding company called Alphabet to pool its many subsidiaries and separate the core web advertising business from newer ventures like driverless cars.

Founder Larry Page on Monday said he'll be CEO of the new holding company while longtime Google executive Sundar Pichai will become CEO of Google's core business, including its search engine, online advertising operation and YouTube video service.

While the company will still use the Google name for those core services, Page said the new structure will provide more independence for divisions like Nest, which makes Internet-connected home appliances, and Calico, which is conducting cutting-edge health research.

The surprise news sent shares of Google up as much as 7 per cent to $708 in after hours trading.

"It suggests that in all likelihood, Google is not going to slow the pace of their experimental processes like self-driving cars," said Michael Yoshikami, head of Destination Wealth Management, which has $1.5 billion under management.

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Analysts said the move may also be a nod to Wall Street demands for more fiscal accountability: As part of the reorganisation, Page said the company will begin reporting financial results by segments. "That should give a clearer picture of how Google's core Internet business is performing, separate from other ventures," said analyst Colin Gillis of the investment firm BGC Partners.

Google reported more than $14 billion in profit on $66 billion in sales last year, most of it from lucrative Internet advertising while other ventures have required large investments without showing immediate returns. The company's stock has surged in recent weeks after a new chief financial officer signaled some trims in corporate spending.

The reorganisation also cements the importance of Pichai, who is viewed by many as a potential successor to Page. Google's other co-founder, Sergey Brin, will be president of the new holding company.

Businesses that will operate separately under the Alphabet umbrella include Calico, which Google established to conduct health research in 2013; Nest, which Google acquired in 2014; Fiber, which is building high-speed broadband networks in several cities; and Google X , the research lab responsible for Google's self-driving car venture and previously developed its controversial Internet headset, known as Glass.

Alphabet will also oversee Google Ventures and Google Capital, two corporate investment entities that focus on early- and growth-stage start-ups.

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Google's YouTube video division, however, will remain part of the core business under Pichai, although Page made a point of praising its chief, longtime ad executive Susan Wojcicki. Google historically has not reported earnings separately for the YouTube business.

The new structure could make it easier for Google Inc to sell off some of its unrelated businesses, or buy new ones, analysts said.

Page has suggested previously that he is a fan of Warren Buffett, the famed financier and CEO of Berkshire Hathaway. Buffett's conglomerate owns more than 80 subsidiary companies and lets each operate with substantial independence.

Google said its chief financial officer, Ruth Porat, will hold the same title for both Google and Alphabet. Once the reorganisation is complete, the company says its two existing classes of publicly traded stock will continue to trade on the Nasdaq exchange under the ticker symbols "GOOG" and "GOOGL."

Alphabet Inc will replace Google as the publicly traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet, with all the same rights.

"This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google," Page, the current CEO of Google, said in a blogpost.

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