SAN FRANCISCO (Reuters) - Google Inc GOOGL.O announced a major shake-up of its operating structure on Monday, creating a holding company called Alphabet which will contain subsidiaries to separate its core web advertising business from newer ventures like driverless cars.
The move appeared to be an attempt to let the search engine giant focus on its more creative and ambitious projects, while investors cheered the potential for more financial disclosures of its disparate business segments.
“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.
The surprise news sent shares of Google up as much as 7 percent to $708 in after hours trading.
“They are aware that they’ve got this hodgepodge of companies. Maybe it’s better to sort them out a bit and make it clearer which ones are bringing in the bacon and which ones are science projects and which ones are long term bets,” said Roger Kay, an analyst at Endpoint Technologies Associates.
The Mountain View-based company co-founded by Larry Page and Sergey Brin in 1998 has grown to more than 40,000 employees worldwide.
Google’s planned structure resembles the way companies like Berkshire Hathaway and General Electric are organized, with a central unit handling corporate-wide activities such as finance and relatively independent business units focused on specific areas.
Under the new corporate structure, the Google unit will encompass the core search engine traditionally associated with the company as well Google Maps and YouTube.
The company’s new ventures such as Calico, which focuses on longevity, and connected home products maker Nest will be managed separately.
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 of the same rights.
“This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google,” said current Google CEO Larry Page in a blogpost.
Analysts also said the new structure could herald a new era of fiscal discipline and transparency in some of its more experimental and opaque business units.
In a SEC filing, Google said the new arrangement will take effect later this year and that it will likely result in two reportable, financial segments.
“For example, if a unit is doing well or badly they can dial it up or down, they can form partnerships or different companies,” said Kay, the Endpoint Technologies Associates analyst.
The shuffle also looked to have the markings of Ruth Porat, who joined Google as its chief financial officer in March from Morgan Stanley. In Google’s recent quarterly conference call, Porat repeatedly emphasized keeping expenses under control.
Porat will serve as the CFO of both Alphabet and Google.
Page will serve as the CEO of the newly created holding company and Sundar Pichai, a long-time Google executive who most recently served as the company’s senior vice president of products, will head Google. The company’s current directors will become directors of Alphabet.
Google co-founder Brin will become president of Alphabet, and Eric Schmidt will be executive chairman.
Analysts said the move, which was mainly about transparency and accountability, could be followed by more structural changes in the future.
“This may be step one of several steps,” said Morningstar analyst Rick Summer.
Additional reporting by Noel Randewich, Malathi Nayak in New York and Devika Krishna Kumar in Bangalore; Editing by Bernard Orr