July 26, 2021

Google investors welcome Alphabet plan

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By Jamie Robertson BBC business reporter
A new-look Alphabet for Google
Google’s shares rose over 6% in after-hours trading Monday after it announced a massive restructuring.
The plan creates a new holding company, Alphabet, to run all the Google companies.
The biggest of these will be the search engine Google, including Google Play, YouTube, Chrome, Google Maps and Android.
More speculative projects like driverless cars and Google Glass will be run separately under Alphabet .
On the face of it there will be little change as operations will stay the same. Users will see no difference.
But for investors, the biggest appeal is that the structure should make it easier to identify the profitability of the core Google operation.
Investment banking firm Stifel changed its rating of Google shares from “hold” to “buy” and said: “We believe this combination leaves the possibility for shares to exceed the S&P 500 return for many years on the back of this new operating structure.”
The idea is to make Alphabet “cleaner and more accountable”, according to Larry Page and co-founder Sergey Brin.
Mr Page will be chief executive of Alphabet and Mr Brin will be President.
The Google business will get Sundar Pichai as its dedicated chief executive, rather than Larry Page who, investors feared, was becoming too distracted by new projects such as drone deliveries and life sciences.
Alphabet will still hold on to the existing GOOG and GOOGL tickers to identify its two classes of shares on the NASDAQ market.
_84815331_gettyimages-461180118Technology consultant Chris Green said : “In many ways it’s no different from what a lot of old economy companies have done as they have grown , as they start to diversify and enter new areas, they need to split the businesses and put them under new structures.”
But while investors will get a better picture of how Google is doing they may be still in the dark over its sister companies, as there seems to be no plan to separate out earnings of its other projects.
But Chris Green said: “These businesses have a very strong connection. Nothing they have invested in is really out of place and they are all linked together to the ‘connected life’.
“This is not just the technology that we use but it also includes the massive data projects that lie behind them and the online storage that these services need to function.”
Larry Page has compared the new structure to Warren Buffett’s Berkshire Hathaway, investing long term in core businesses which are allowed to operate independently.
He said: “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.”
Using Buffett as a model is seldom unpopular with investors, but spotting new trends in technology is something that Buffett has famously avoided.
Projects such as its life sciences businesses, the X Lab, and Wing, the firm’s drone delivery project are highly imaginative – but also very risky.
It might be fairer to compare Alphabet to Japan’s Softbank, an early investor into internet start-ups, mobile technology, renewable energy and infrastructure and now attracting media attention for producing Pepper, the first humanoid robot designed to live and socially interact with humans.
Valued at over $70bn, Softbank has made an annual 45% return on its internet company investments over the last ten years, largely thanks to its hugely successful investment in Chinese e-commerce firm Alibaba.
For more on this story go to: http://www.bbc.com/news/business-33863666

Related story:
Cleary Gottlieb got call on Google restructuring
By David Ruiz and Patience Haggin, From The Recorder
SAN FRANCISCO — A team from Cleary Gottlieb Steen & Hamilton advised Google on the corporate restructuring plan that promises to unshackle its less proven businesses from the its mainstay search business.
And corporate lawyers say the new structure, with the umbrella company Alphabet on top, might also allow for easier spinoffs, quicker acquisitions, and a more legible business strategy to investors.
“You can more clearly report to the market your results with respect to a particular business,” said Davis Polk & Wardwell partner Alan Denenberg. “What it will more easily facilitate is for them to report to the market.”
Google co-founder Larry Page announced the moves Monday. He will serve as the chief executive officer for Alphabet.
Inside the company, a few changes are known. Chief legal officer David Drummond, the former Wilson Sonsini partner who joined Google before it went public, is moving over to Alphabet, where he’ll be the senior vice president of corporate development, said a Google spokeswoman. According to a filing with the U.S. Securities and Exchange Commission, Drummond will also be Alphabet’s chief legal officer, the title he holds today at Google.
Google’s current general counsel, Kent Walker, will remain as such for the slimmer, newer Google. As for the subsidiaries, the same Google spokeswoman said that the companies can hire independently of Google’s watch.
What that portends for Google’s huge in-house department remains to be seen. But by giving its business units greater independence, it could create openings for new outside-counsel relationships.
Google uses a long list of firms, though its ties to Wilson Sonsini, which took it public, remain strong. Wilson partners have handled recent privacy litigation over its Gmail service and are leading a countersuit against Mississippi’s attorney general over an investigation the company calls “retaliatory and overbroad.” And in 2014, Google turned to Wilson’s corporate-governance lawyers to create a new class of stock designed to preserve the voting rights enjoyed by the company’s founders.
Wilson Sonsini lawyers also advised Google on its purchase of Nest Labs.
But Cleary Gottlieb has emerged in recent years as a favorite for corporate work In 2011, the firm advised Google on its $12.5 billion purchase of Motorola Mobility Holdings Inc., only to represent the firm again three years later as it sold Motorola Mobility to Lenovo Group Ltd. for $3 billion. Cleary also advised Google in its purchase of Israeli mapping company Waze for $1.1 billion in 2013 and its sale of Motorola’s set-top box business for $2.35 billion in 2012.
Known for its search function, its mapping, YouTube, Android and its advertising, Google also has science fiction in its belt. Calico, a company it helped start two years ago, is trying to slow down aging in humans. Nest Labs, the Palo Alto-based smart thermostat company that Google bought for $3.2 billion in 2014, has since developed a smoke alarm. It also made a camera to put inside the home. Its Google X lab is working on providing developing countries with Internet access by placing wireless-enabled balloons into the planet’s stratosphere.
“Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related,” Page said on a company blog post Monday. “Google is a bit slimmed down, with the companies that are pretty far afield of our main Internet products contained in Alphabet instead.”
Inside Alphabet will be Calico, Nest, Fiber, Sidewalk, venture-financing groups and Google X.
Davis Polk’s Denenberg said that splitting up the subsidiaries clears up how Google’s core business works and where it draws its biggest returns and losses.
“You would allow the businesses to be valued separately,” Denenberg said. He said that spinoffs also become easier, and that, if Google was planning to spin off its businesses in the future, this reorganization would be the first step.
The Cleary Gottlieb team included New York-based counsel Mary Alcock and partners Ethan Klingsberg, Pamela Marcogliese, Glenn McGrory, Leonard Jacoby, Yaron Reich and Richard Sultman, who works in the London office. Associates Corey Goodman, Cécile Abramowicz, Tinbet Tecle, Yoon Suk Choo, Lisa McKenna, Hugh Murtagh, Yana Chernobilsky, Christopher Adams, Brendan Cohen, Caitlin Reardon, Sophia Yuan, Aditi Eleswarapu, Jeanne-Paloma Zelmati, Jackie Robinson and Alexandra O’Donohue also worked on the deal, all based in New York.
For more on this story go to: http://www.therecorder.com/id=1202734514306/Cleary-Gottlieb-Got-Call-on-Google-Restructuring#ixzz3iemeZab8

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