Bayer to sell businesses and cut 12,000 jobs

BAYER, the German multinational pharmaceutical and life sciences company, has announced plans to sell businesses and cut approximately 12,000 jobs. This follows the recent US$66bn acquisition of agricultural giant Monsanto.

According to Reuters, chief executive Werner Baumann is under pressure to boost Bayer’s share price, which has dropped more than 35% so far this year. It is reportedly down because of concerns about more than 9,000 lawsuits Bayer now faces because of the alleged cancer-causing effect of Monsanto’s Roundup weedkiller. Earlier this year Monsanto was ordered to pay US$289m to a terminally-ill cancer patient who blamed the glyphosate-based weedkiller for his cancer.

Bayer has planned a series of measures designed to strengthen its core life science businesses, to enhance its productivity and innovation, and improve competitiveness and profitability. Measures are planned across all divisions, functions, country platforms, and services.

Measures include plans to sell its animal health business, consumer brands Coppertone and Dr Scholl’s, and its 60% stake in the German site services company, Currenta. The company will also be cutting about 12,000 of 118,200 (10.2%) of jobs world-wide by 2021. A significant portion of these cuts will be in Germany.

Strengthening core businesses

Reuters reports that Bayer’s animal health business ranks fifth in the industry, and analysts said it could sell for €6bn–7bn (US$7.9bn). The business offers potential growth options in an attractive market, but Bayer intends to instead allocate the resources needed to support the division to its core businesses – pharmaceuticals, consumer health, and crop science.

In order to drive the profitable growth in its core consumer health categories, Bayer plans to exit product categories that will do better outside of the company. Bayer has already announced the divestment of its prescription dermatology drugs. It also plans to sell Coppertone and Dr Scholl’s, skincare and footcare product lines respectively. Bayer acquired these lines from Merck and Co in 2014 as part of a US$14.2bn acquisition.

Bayer also intends to sell its 60% stake in Currenta. Currenta is a site services company in Germany owned by Bayer and Lanxess. Following the carve-out of Covestro, Bayer can no longer justify its stake in the company.

Reuters reported that Markus Mayer, an analyst at Baader Helvea, said Coppertone and Dr Scholl’s could sell for €1bn and the Currenta stake could go for €1.5bn. An investment banker who asked not to be named told Reuters that Rekitt Benckiser and Procter and Gamble will likely be among the prospective buyers.

In the pharmaceutical division, Bayer intends to strengthen focus on external innovation and achieve continual development of the research and development pipeline. Resources freed up by reducing internal capacities will be used to strengthen the investment in collaborative research models and external innovations.

Bayer plans not to further utilise its factor VIII facility in Wuppertal, Germany. The facility manufactures recombinant factor VIII used to treat haemophilia A, a blood-clotting disorder. The company plans to focus production of the factor in its Berkley, US facility. The haemophilia business recently saw the introduction of a number of new products and Bayer expects that this move will enable its business to remain competitive.

Job cuts

The various measures planned by Bayer account for the intended job cuts totalling approximately 12,000 world-wide. In the pharmaceutical division approximately 900 jobs are to be cut in research and development, and around 350 cuts will result from the decision to stop factor VIII production in Germany. About 1,100 jobs will be cut due to the measures in the consumer health business. The integration of recently-acquired Monsanto will lead to approximately 4,100 jobs lost in the crop science division. In corporate functions, supporting functions, business services, and country platforms a total of 5,500–6,000 jobs will be lost.

“These changes are necessary and lay the foundation for Bayer to enhance its performance and agility. With these measures, we aim to take full advantage of the growth potential for our businesses,” said Werner Baumann. “We are aware of the gravity of these decisions for our employees. As in the past, we will implement the planned measures in a fair and responsible way.”

Bayer expects the planned measures, including synergies expected from the Monsanto acquisition, to result in annual contributions of €2.6bn from 2022 onwards. One-time costs of the measures are expected at a factor of 1.7 times annual contributions.

Bayer’s target is to increase core earnings per share by about €1 to €6.80 in 2019. By 2022 Bayer expects these earnings to reach about €10 per share. The earnings before interest, taxes, depreciation and amortisation (EBITDA) margin before special items is targeted to increase to over 30% by 2022.

Bayer outlined its corporate strategy, financial targets, and capital allocation priorities at the Capital Markets Day held in London, UK on 5 December.