Bayer Takes Big Restructure Steps

Within the space of two weeks, Bayer has taken two big steps toward completing its multiyear corporate reshaping.

Last week, the German firm agreed to buy, for just under $3 billion, the over-the-counter (OTC) drug business of Roche. Four days before that, it announced that it would spin off its commodity chemicals unit, Lanxess, to shareholders, followed by a stock exchange listing next year. Now, only one step is left: the sale of its blood plasma business.

The Roche deal reinforces Bayer's focus on its health care operations, including prescription pharmaceuticals, and on crop science products and specialty materials.

The Roche unit will add sales of about $1.25 billion per year. Combined with Bayer's own OTC subsidiary, which last year had sales of $3.8 billion, the enlarged operation will be one of the top OTC consumer health companies worldwide and will be nearly as large as Bayer's prescription pharmaceuticals division.

In general, financial analysts are pleased with the deal. As David Phillips, chemicals analyst at Commerzbank in London, puts it, "It's a good fit--this will make Bayer's health care earnings more stable." Earnings at the firm's prescription drug business have sagged in recent years due to a dearth of new products and the recall of the anticholesterol drug Baycol.

Although some analysts are complaining that the sale price of $2.9 billion is too high, the figure is only slightly more than expected, according to Phillips. "When you look at Bayer's acquisitions over the past few years," he says, "Bayer tends to pay top whack for what they want, to make sure they get it."

Moreover, the purchase includes more than originally expected: In addition to Roche's consumer health division and production sites in Germany, France, Argentina, Morocco, and Indonesia, Bayer also gets Roche's 50% stake in the two firms' U.S. joint venture. Only the OTC business of Japan's Chugai, in which Roche has a majority stake, is not included.

"It is our intention to further strengthen Bayer's OTC business to become world leader, and with this acquisition we make another large step toward this goal," Bayer Chairman Werner Wenning says.

Meanwhile, Bayer has decided that the current stock market climate is so unfavorable to initial public offerings that it will instead spin off Lanxess by issuing shares to current Bayer shareholders. A stock exchange listing is planned for early next year; Bayer will not retain an ownership stake.

The split will leave Bayer with annual sales of about $28 billion, at current exchange rates, in its selected high-value-added industry sectors. Lanxess will have sales running at more than $7 billion in more commodity-oriented chemicals and polymers.

Bayer will hold a shareholders meeting in mid-November to vote on the spin-off proposal. By that time, the company says, a full evaluation of pricing and other details will be completed.

The company will not comment on press reports that private equity firms Bain Capital and the Carlyle Group are in a bidding battle for the blood plasma operations, which investment bankers Morgan Stanley have been trying to sell for Bayer since last year. The sale is expected to be wrapped up in the next several months. Bayer wants to keep the jewel of the blood plasma business, the genetically engineered hemophilia treatment Kogenate.