Issue Date: September 22, 2014
Bayer To Exit Chemicals
Bayer plans to float its polymer business, known as Bayer MaterialScience (BMS), on the stock market as a separate entity in the next 12 to 18 months, leaving the German giant with only pharmaceutical and agricultural chemical activities.
The spin-off will mark the end of an era not just for Bayer but for big German firms with both drug and chemical businesses, a strategy that dates back almost 150 years to the early days of the chemistry enterprise. Two other German majors, Hoechst and BASF, separated their pharma and chemical businesses in 1998 and 2001, respectively. Family-controlled Merck KGaA is the last German company to keep to a drugs-and-chemicals strategy.
BMS has 16,800 workers and annual sales of $15.6 billion from polymers such as polycarbonate and polyurethanes, making it one of the four largest chemical firms in Europe in its own right. But it has struggled to post strong returns in recent years. Although it accounted for 30% of Bayer’s sales last year, it contributed just 12% of pretax profits.
Hiving off BMS will leave a life sciences firm with annual sales of $40.4 billion—more than half of which will be from the Bayer HealthCare pharmaceutical business—and 99,000 employees. Leverkusen will continue to be the headquarters site for both Bayer and BMS for the foreseeable future. Bayer says it will protect jobs in both organizations for the next five years.
“We feel it has become increasingly difficult to adequately resource life sciences and MaterialScience in one group,” Bayer Chairman Marijn Dekkers told journalists during a conference call to discuss the move. Money raised from the sale of BMS will enable Bayer to increase R&D spending, make small acquisitions, and reduce debt following its $14.2 billion acquisition earlier this year of the over-the-counter drug business of Merck & Co., Dekkers said.
Bayer floated its commodity chemicals business, Lanxess, in 2005. That company has struggled financially recently. However, BMS is number one or two in the world in the sectors in which it operates and “can generate significant value on a stand-alone basis,” Dekkers said.
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