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Google creates new company Alphabet, names new CEO

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SAN FRANCISCO — In a major overhaul of how one of the world’s most powerful technology companies does business, Google is creating a new publicly traded parent company called Alphabet Inc. that will be run by Google co-founders Larry Page and Sergey Brin.

Google will become a subsidiary of Alphabet and is getting a new CEO: top Google executive Sundar Pichai.

“Our company is operating well today, but we think we can make it cleaner and more accountable,” Page wrote in a letter included in a regulatory filing on Monday afternoon.

Alphabet will be a “collection” of companies, the largest of which is Google, Page said. But Google will be “slimmed down,” excluding companies that are not part of its core Internet business. For example, Google’s foray into the life sciences with glucose sensing contact lenses and its focus on extending human life with Calico will not be part of Google. But Google will still include the businesses that people typically associate with it such as search advertising, Android, YouTube, apps and so forth.

“Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related,” Page said.

Longtime Google observer Danny Sullivan saw the creation of the parent company as a positive move.

“I think this sets up Google to be a much more diversified company,” Sullivan said. “It certainly allows Google to expand its mission. … It’s an excellent way to have multiple companies underneath that run as independent entities.”

Page is also making room for talented executives to move up in, rather than leave, Google, Sullivan said.

“It’s a smart way to ensure that you can keep talented executives,” he said.

Page will be CEO of Alphabet, Brin will be president and Eric Schmidt will be executive chairman. Google’s new chief financial officer Ruth Porat will become CFO of Alphabet and Google’s current directors will become directors of Alphabet.

A “strong” CEO will run each of the Alphabet businesses with assistance from Page and Brin, Page said. That includes Google which will be run by Pichai, Page’s top lieutenant.

“We will rigorously handle capital allocation and work to make sure each business is executing well,” Page said.

As part of the business reorganization, Alphabet will begin “segment” reporting for its fourth-quarter financial results. Google financials will be broken out from the rest of the Alphabet businesses.

“This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google,” Page said.

The news announced after the close of trading on Monday took Wall Street by surprise. Google GOOG shares rose 6% in after-hours trading on Monday. Google made the announcement after trading ended for the day.

Google will be a wholly owned subsidiary of Alphabet. The two share classes will remain GOOGL and GOOG.

S&P Capital IQ analyst Scott Kessler says it sounds like Google is creating a holding company for its different brands and businesses.

“People want a better sense of what Google is and how it’s performing, this is a way to do that,” Kessler said.

Kessler also praised the pick of Pichai, who has been a rising star at the Internet, leading to speculation in recent years that he would eventually succeed Page as CEO.

“Sundar Pichai as CEO is big for a variety of reasons,” Kessler said. “I am sure he has been offered a number of things at other places. To keep him is key.”

Page said Pichai was the natural choice to lead Google.

Sundar “has really stepped up since October of last year, when he took on product and engineering responsibility for our Internet businesses. Sergey and I have been super excited about his progress and dedication to the company,” Page said. “I feel very fortunate to have someone as talented as him to run the slightly slimmed down Google and this frees up time for me to continue to scale our aspirations. I have been spending quite a bit of time with Sundar, helping him and the company in any way I can, and I will of course continue to do that.”

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