Bayer to Slim Down, Tighten Focus
As of Monday, November 10, 2003
Company Plans to Split Off
Some Polymers, Chemicals
By GAUTAM NAIK
Staff Reporter of THE WALL STREET JOURNAL
Bayer AG, the inventor of aspirin, is betting it can transform itself into a smaller conglomerate focused on a slimmer area of businesses.
The German company said it will split off its industrial-chemicals division and part of its polymers division into a new company with €5.6 billion ($6.46 billion) in annual revenue. The businesses it will retain, including health care, drugs, crop science and materials operations, bring in a total of €22 billion in revenue. (See related commentary.)
"We are convinced this will generate the greatest value for our shareholders," said Werner Wenning, Bayer's chief executive officer.
In 4 p.m. New York Stock Exchange composite trading Friday, Bayer's shares rose $1.73, or 7.2%, to $25.90.
But Bayer's restructuring, which some investors have sought for years, is unlikely to provide a short-term fillip, especially in its higher-profile health-care business, which last year brought in revenue of €9.4 billion, of which €3.7 billion related to pharmaceutical sales.
One reason is that the company's drug pipeline remains thin. And it is still recovering from two difficult blows: the withdrawal of a leading cholesterol medicine, Baycol, which was linked to several deaths; and lower sales of the hemophilia drug, Kogenate, which was affected by production problems.
Those tribulations forced Bayer to seek a partner for the drug business, but the effort failed. Things may continue to stay tough. The European pharmaceuticals market, on which Bayer plans to focus, is smaller and growing at a slower rate than the U.S. market. Any desire by Bayer to bulk up the drugs business -- through a joint venture or merger -- also appears to have been abandoned, at least for now.
"If they wanted to do that, they'd have put more than the low-value chemicals business" into the operations to be split off, said Jo Walton, analyst at Lehman Brothers in London. "They intend to retain their conglomerate identity." Other European companies, such as Aventis SA of France and Roche Holding AG of Switzerland, have moved more dramatically.
Bayer's midsize-drug business could also find it hard to compete against such companies as GlaxoSmithKline PLC and Pfizer Inc., which possess far greater marketing heft. While several midsize-drug firms in Europe -- including Schering AG and Altana AG of Germany and Denmark's Novo Nordisk A/S -- are generally doing well, they have largely pulled it off by specializing.
In contrast, Bayer manufactures drugs for the primary-care market in direct rivalry with some of the biggest pharmaceutical companies. "That will make it difficult for them," said Ms. Walton.
Bayer disagrees. "The main criteria is whether a product can be established in the market," a Bayer spokesman said. Mr. Wenning, the CEO, said the restructured Bayer "will be able to focus more closely on the core businesses, in which we have excellent technologies, strong market positions, and above all, growth areas that we intend to further strengthen."
Bayer's new chemicals and polymers company will have a work force of 20,000. The businesses will be shed by early 2005 either via a public share offer or a spinoff.
\*The company said the strategy changes mean it will have 1,000 fewer job cuts than originally planned. This partly reflects a "solidarity initiative" by all employees, including executive-board members, which involves reducing a part of their salaries by as much as 10%. Bayer has also extended a job-security agreement, guaranteeing no forced layoffs until the end of 2007. This applies to Bayer and the newly split-off company, it said. |
