Google throws mas­sive curve­ball in new struc­ture – Al­pha­bet vs. Google

Financial Mirror (Cyprus) - - FRONT PAGE - By Jon C. Ogg

Google Inc. (NAS­DAQ: GOOGL) is cre­at­ing a new public hold­ing com­pany called Al­pha­bet Inc. This rep­re­sents what may be a par­a­digm shift in the re­port­ing struc­ture, as well as who is run­ning the day to day oper­a­tions at Google. It is also go­ing to leave many share­hold­ers scratch­ing their heads.

Google is go­ing to be ask­ing share­hold­ers to trust man­age­ment here, al­beit new man­age­ment. With­out much sur­prise, Google shares rose 5% or so in the after­hours ses­sion on this news. The belief here is that this stream­lines the busi­ness struc­ture. Still, we have to see what this re­ally means for the Google struc­ture and hold­ers be­fore mak­ing a fi­nal judg­ment — and a lot of the is­sues here will not be known for quite some time.

The new op­er­at­ing struc­ture is said to in­crease man­age­ment scale and fo­cus on its con­sol­i­dated busi­nesses. The main Google busi­ness will in­clude search, ads, maps, apps, YouTube and An­droid and the re­lated tech­ni­cal in­fra­struc­ture.

Busi­nesses such as Cal­ico, Nest, and Fiber, as well as its in­vest­ing arms, such as Google Ven­tures and Google Cap­i­tal, and its in­cu­ba­tor projects, such as Google X, will be man­aged sep­a­rately from the Google busi­ness.

Un­der the new op­er­at­ing struc­ture, Larry Page will be­come the Chief Ex­ec­u­tive Of­fi­cer of Al­pha­bet and Sergey Brin will be­come the Pres­i­dent of Al­pha­bet. Dr. Eric Sch­midt will be­come the Ex­ec­u­tive Chair­man of Al­pha­bet, with Ruth Po­rat be­ing the Se­nior Vice Pres­i­dent and Chief Fi­nan­cial Of­fi­cer of Al­pha­bet.

David Se­nior C. Drum­mond will Vice Pres­i­dent, be­come the

Cor­po­rate De­vel­op­ment, Chief Sec­re­tary of Al­pha­bet.

Larry, Sergey, Eric and David will tran­si­tion to these roles from their re­spec­tive roles at Google, whereas Ruth will also re­tain her role as the CFO of Google.

Af­ter the com­ple­tion of the Al­pha­bet merger, Sun­dar Pichai will be­come the new CEO of Google Inc. — he is cur­rently the Se­nior Vice Pres­i­dent of Prod­ucts at Google, and he over­sees prod­uct man­age­ment, en­gi­neer­ing, and re­search ef­forts for Google’s prod­ucts and plat­forms. Prior to his cur­rent role, he served as Google’s SVP of An­droid, Chrome and Apps.

Google calls this a “Hold­ing Com­pany Re­or­gan­i­sa­tion” and it will re­sult in Al­pha­bet own­ing all of the cap­i­tal stock of Google. The com­pany said that “upon con­sum­ma­tion of the Al­pha­bet Merger, Google’s cur­rent stock­hold­ers will be­come stock­hold­ers of Al­pha­bet. The stock­hold­ers of Google will not recog­niSe gain or loss for U.S. fed­eral in­come tax pur­poses upon the con­ver­sion of their shares in the Al­pha­bet Merger.”

Fol­low­ing the con­sum­ma­tion of the Al­pha­bet Merger, shares of Class C cap­i­tal stock and Class A com­mon stock will con­tinue to trade on the NAS­DAQ Global Se­lect Mar­ket un­der the sym­bol “GOOG” and “GOOGL”, re­spec­tively.

Upon con­sum­ma­tion of the Al­pha­bet Merger, the di­rec­tors of Al­pha­bet will be the same in­di­vid­u­als who are the di­rec­tors of Google im­me­di­ately prior to the Al­pha­bet



and Merger.

Here is where this gets to another “trust me” area for share­hold­ers. The fi­nan­cial re­port­ing’s new le­gal and op­er­at­ing struc­ture will be in­tro­duced in phases over the com­ing months and when fi­nalised, Google an­tic­i­pates that it will re­sult in two re­portable seg­ments for fi­nan­cial re­port­ing pur­poses, with the Google busi­ness pre­sented sep­a­rately from other Al­pha­bet busi­nesses taken as a whole. Ac­cord­ingly, Al­pha­bet will re­port its re­sults un­der this new struc­ture com­menc­ing with its Q4 earn­ings re­lease and its An­nual Re­port on Form 10-K for the pe­riod end­ing De­cem­ber 31, 2015.

Google also noted even more changes here. Con­cur­rently upon com­ple­tion of the Al­pha­bet merger, Omid Kordestani will tran­si­tion from his role as Google’s Chief Busi­ness Of­fi­cer to be­come an Ad­vi­sor to Al­pha­bet and Google.

Google’s of­fi­cial blog post said: “What is Al­pha­bet? Al­pha­bet is mostly a col­lec­tion of com­pa­nies. The largest of which, of course, is Google. This newer Google is a bit slimmed down, with the com­pa­nies that are pretty far afield of our main in­ter­net prod­ucts con­tained in Al­pha­bet in­stead. What do we mean by far afield? Good ex­am­ples are our health ef­forts: Life Sciences (that works on the glu­cose sens­ing con­tact lens), and Cal­ico (fo­cused on longevity). Fun­da­men­tally, we be­lieve this al­lows us more man­age­ment scale, as we can run things in­de­pen­dently that aren’t very re­lated. Al­pha­bet is about busi­nesses pros­per­ing through strong lead­ers and in­de­pen­dence. In gen­eral, our model is to have a strong CEO who runs each busi­ness, with Sergey and me in ser­vice to them as needed. We will rig­or­ously han­dle cap­i­tal al­lo­ca­tion and work to make sure each busi­ness is ex­e­cut­ing well. We’ll also make sure we have a great CEO for each busi­ness, and we’ll de­ter­mine their com­pen­sa­tion.”

The long and short of the mat­ter here is that in­vestors are go­ing to have to play a game of wait and see be­fore they re­ally un­der­stand how this works out. When Google con­ducted its stock split that it was re­ally an is­sue of tak­ing more con­trol by cre­at­ing the two public classes of shares.

Google’s share­hold­ers al­ready had to ac­cept that they had no real vote that mat­ters in how the com­pany is run. Now they get that plus be­ing con­fused over what the real struc­ture will be ahead.

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