Chrome could be successfully divested from Google along with the roughly 1,200 employees working on the browser but there may be a need to employ a "carrots and sticks" approach to make the transfer more lucrative, the former global head of technology M&A for Citigroup testified today. David Locala, a retired investment banker who has worked on over 100 transactions representing a transaction value of more than $400 billion over 30 years, said Chrome represents an attractive acquisition opportunity for potential buyers because of its large user base, its leading market position and its well-known product features.
Chrome could be successfully divested from Google along with the roughly 1,200 employees working on the browser but there may be a need to employ a "carrots and sticks" approach to make the transfer more lucrative, the former global head of technology M&A for Citigroup testified today.David Locala, a retired investment banker who has worked on over 100 transactions representing a transaction value of more than $400 billion over 30 years, said Chrome represents an attractive acquisition opportunity for potential buyers because of its large user base, its leading market position and its well-known product features.
"As it relates to the Chrome divestiture, it's pretty clear that the Chrome team should transfer with the product," Locala testified during an evidentiary hearing in a monopolization lawsuit.
"The question really becomes, what happens with the employees that are at other parts of Google that today support the Chrome product, and which of those employees will transfer with the the divestiture? That's really kind of where the issue is," Locala said. Those employees comprise a big, allocated cost item, he said.
The US Department of Justice and a multistate coalition led by Colorado are seeking the forced sale of the Chrome browser and several behavioral remedies after a Washington, DC federal judge found in August 2024 that Google illegally monopolized the Internet-search market and search text-ads market.
"Do the personnel have a say in whether they go or not?" US District Judge Amit Mehta asked.
"Well, here there's carrots and sticks," Locala replied.
Typically, in the early stages of the process, a company will identify what the cost is that has been allocated to the business and a rough headcount required, he said.
"So, employees are usually willing to go with a business, if they [the management] say 'you're going to transfer with it'," Locala said. "There's usually retention packages that make it more lucrative for them to go. Each one's different, though. No cookie cutters."
— Splitting apart highly integrated firms —
The former banker was tasked by the government to develop views on three questions. The first was, would Chrome represent an attractive acquisition opportunity for potential buyers? The second was, how might an independent Chrome generate revenue once it is separated from its parent company? And finally, established corporate practices demonstrate that Chrome could be divested from its parent company.
Locala testified that Chrome's 4.1 billion monthly active users could be monetized to generate sufficient revenues for an independent Chrome to be financially viable. A well-established corporate practice also provides a framework for executing the Chrome divestiture, he said.
Chrome is a highly integrated business, but it is not dissimilar to others in the technology sector that have had more extensive linkages between the parent and the divested business, he said.
Linkages between highly integrated businesses such as Chrome and Google can be operational linkages, commercial, related to R&D, and involve personnel, finance, HR and corporate overhead, he said.
"Yes, there's a number [of companies] in the technology sector that I would consider integrated," Locala said.
He cited the instance of semiconductor company AMD, which for 50 years had been a design and manufacturing business. Normally, there is a design group that designs the semiconductor with digital tools and software, and then they hand off the design to a manufacturing group that operates production and fab equipment. "It's very complicated. When AMD was founded, 50 years before this divestiture happened, companies had to do both, and they were integrated... it's hard to imagine a more integrated business that was separated than what AMD did in the tech sector," Locala said.
In 2012, AMD completed its divestment from GlobalFoundries, the company it had spun off in 2009 to focus on chip design.
"Google also had experience with this." The tech giant has conducted a number of divestitures, and they've acquired some businesses that were divested by others, Locala said.
Google took on about 2,000 engineers they had brought on board from another company called HTC. Google also divested Motorola’s home business where over 4,000 employees from all parts of Motorola and Google had to transfer.
In December 2012, Google sold Motorola Home, its set-top box business, to Arris Group for $2.35 billion in cash and stock.
"I would say that, just to size it, there's 1,250 or so employees on the Chrome team," Locala said.
There are others divestiture examples in the tech sector. eBay divested the PayPal business, he said.
Locala said he worked on one divestiture of a business that was “completely vertically integrated,” involving the Italian company Pirelli. The business had components that were “this kind of a special sauce” that were used in a system product that was then the system product was divested. Later they divested the component business, so the first step was a divestiture of a completely vertically integrated component supplier to end product of very specialized technology equipment, he said.
Locala talked about the Transition Services Agreement, which is part of virtually every divestiture, and really helps ease the transition of a business from the seller to the buyer.
The agreement comes into play because the buyer can't make any changes until they actually own it, but they will want to take actions toward integration to use their own systems instead of the ones already in place. For instance, the seller group can provide help-desk support for employees that are transferring, until the buyer can obtain their own help desk to be plugged in.
“These aren't terribly controversial. The buyer pays for it, but this is something that's specific to each buyer, and therefore it's not really finalized until the final buyer is identified,” he said.
Tasneem Chipty, an economic expert, will take the stand as the government’s final witness tomorrow.
Google will begin presenting its case-in-chief, with Google’s cybersecurity resilience officer Heather Adkins taking the stand as the tech giant’s witness.
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