*

Deal structure mirrors other 'acquihires' by tech firms,

could

draw regulatory scrutiny

*

Windsurf investors will receive liquidity, sources say

*

OpenAI was in talks to acquire Windsurf for $3 billion

(Updates with background, context and additional details of the

partnership)

July 11 (Reuters) - Alphabet's Google has

hired several key staff members from AI code generation startup

Windsurf, a Google spokesperson said on Friday, in a surprise

move following an attempt by its rival OpenAI to acquire the

startup.

Windsurf CEO Varun Mohan, co-founder Douglas Chen, and

select members of the coding tool's research and development

team will join Google's DeepMind artificial intelligence

division, the Google spokesperson said.

The former Windsurf team will focus on agentic coding

initiatives at Google DeepMind, primarily working on the Gemini

project.

ChatGPT maker OpenAI was in talks to buy Windsurf, one of

the hottest startups disrupting software development, sources

familiar with the matter told Reuters in June.

OpenAI could not immediately be reached for a comment.

"We're excited to welcome some top AI coding talent from

Windsurf's team to Google DeepMind to advance our work in

agentic coding," the Google spokesperson said.

As part of the deal, the search engine giant is entering a

non-exclusive license for certain Windsurf technology, according

to a source familiar with the matter. Google will not take a

stake in Windsurf, the person said.

Windsurf investors will receive liquidity as part of the

deal, sources told Reuters.

Google's surprise swoop mirrors a deal in August 2024 to

hire key employees from chatbot startup Character.AI.

Big Tech peers, including Microsoft ( MSFT ), Amazon ( AMZN )

and Meta, have similarly taken to these

so-called acquihire deals, which some have criticized as an

attempt to evade regulatory scrutiny.

Microsoft ( MSFT ) struck a $650 million deal with Inflection AI in

March 2024, to use the AI startup's models and hire its staff,

while Amazon ( AMZN ) hired AI firm Adept's co-founders and some of its

team last June.

Meta took a 49% stake in Scale AI in June in the biggest

test yet of this increasing form of business partnerships.

Unlike acquisitions that would give the buyer a controlling

stake, these deals do not require a review by U.S. antitrust

regulators. However, they could probe the deal if they believe

it was structured to avoid those requirements or harm

competition.

Many of the deals have since become the subject of

regulatory probes.

The development comes as tech giants, including Alphabet and

Meta, aggressively chase high-profile acquisitions and offer

multi-million-dollar pay packages to attract top talent in the

race to lead the next wave of AI.

Windsurf's head of business, Jeff Wang, has been appointed

its interim CEO, and Graham Moreno, vice president of global

sales, will be president, effective immediately.

The majority of Windsurf's roughly 250 employees will remain

with the company, which has announced plans to prioritize

innovation for its enterprise clients.

(Reporting by Kenrick Cai in San Francisco, Krystal Hu in New

York, and Kritika Lamba in Bengaluru; Editing by Shailesh Kuber

and Muralikumar Anantharaman)