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Asset Sales, Cost Cuts Pose Challenge for New BayerCFO
Shares of the German chemicals and pharmaceuticals company havelost roughly a third of their value since Aug. 10
Bayer AG’s program of asset sales and cost-cutting is one of thefirst big tasks for new finance chief Wolfgang Nickl as the drugsand chemicals giant battles a decline in investor confidencefollowing its acquisition of Monsanto Co.
Leverkusen, Germany-based Bayer on Thursday announced it wouldcut 12,000 jobs—around 10% of its 118,200 strong globalworkforce—and dispose of its animal-health business, some consumerbrands and a 60% stake in chemical park operator Currenta. Costsavings are forecast to amount to €2.6 billion ($3.0 billion) by2022, Chief Executive Werner Baumann said during a call withjournalists.
Mr. Nickl—who took on the role of Chief Financial Officer onJune 1 after a stint as CFO of ASML NV, a Dutch supplier ofmachines for making computer chips—will be involved with executingthe program and delivering synergies from the Monsanto transaction,according to analysts.
Bayer hopes to generate around €1.0 billion in annual costsavings through the integration of the U.S. pesticides maker, whichit agreed to buy in September 2016.
“This is a big challenge for the CFO,” said Markus Mayer, ananalyst at Baader Bank AG . The tasks ahead for Mr. Nickl includefinding potential buyers for unwanted assets, reducing costs andmanaging the integration of Monsanto, Mr. Mayer said.
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Shares of Bayer have lost roughly a third of their value sinceAug. 10, when a San Francisco jury verdict found a Monsanto weedkiller responsible for a man’s cancer. Bayer faced lawsuits from9,300 plaintiffs at the end of the October, up from 8,700 at theend of August, and is increasingly under pressure to justify thebenefits of the $63 billion transaction that was completed in earlyJune.
Some of the cut: announced job cuts will affect corporate andsupport functions, business services and various country platforms,a Bayer spokesman said. The company on Thursday said it will cut5,500 to 6,000 jobs in this area.
While the divestment and restructuring initiative is spearheadedby CEO Mr. Baumann, CFO Mr. Nickl will be key to its success, saidDaniel Wendorff, an analyst at CommerzbankAG .
Debt reduction should be a priority for Mr. Nickl as he reshapesthe 155-year old company, Mr. Wendorff added. Bayer has guided thatits debt pile will total €36 billion at the end of the year,according to analysts at Jefferies International Ltd.
Bayer needs to pay off debt so that it can tap the capitalmarkets to finance the acquisition of smaller and medium-sizecompanies to boost its pharmaceuticals business, Mr. Wendorffsaid.
Mr. Wendorff said such transactions could be worth between €500million and €5 billion.
Bayer to Cut 12,000 Jobs, Shed Coppertone and Dr.Scholl’s Brands
German company plans to cut 10% of its workforce as it seeks toregain investors’ favor
BERLIN— Bayer AG BAYRY 0.95% on Thursday said it would cut12,000 jobs and sell its animal-health business, Coppertonesunscreens and Dr. Scholl’s foot-care products in an effort to winback investors’ trust after a string of setbacks and a sharp fallin its share price.
The job cuts, targeting some 10% of Bayer’s 118,200 globalworkforce, come as the German chemicals and pharmaceuticals companyfaces challenges in most of its businesses, from falling sales ofover-the-counter drugs to a dwindling stable of blockbusterprescription medicines.
Compounding its difficulties, the company known mainly as theinventor of Aspirin faces nearly 10,000 lawsuits from users ofweedkillers it recently acquired as part of Monsanto. Plaintiffsallege the products cause cancer, a claim Bayer has vigorouslyrejected.
The $63 billion Monsanto acquisition, which closed in June, wasa bid by Chief Executive Werner Baumann to boost the company’sscale and give it a strong second leg in crops and seeds alongsideits pharmaceutical activities.
But the legal woes have put the company on the defensive andangered some investors already skeptical of the deal when it wasclinched. With the stock falling, some Bayer leaders are alsogrowing anxious that the company could become a target for hostileinvestors, according to a person familiar with the company.
Bayer’s shares have lost roughly a third of their value since aSan Francisco jury verdict in August found that Monsanto’s Roundupweedkillers, which contain the chemical glyphosate, wereresponsible for causing cancer in a man. Bayer is appealing thedecision.
Thursday’s announcement wasn’t linked to the glyphosatelitigation or the Monsanto acquisition, Mr. Baumann told reporters,adding that the job cuts and disposals would “position Bayer as aleader across all its businesses.”
“These changes are necessary and lay the foundation for Bayer toenhance its performance and agility,” Mr. Baumann said.
Bayer said it expected the battery of cost-saving measures anddisposals to create annual savings of €2.6 billion ($2.96 billion)as of 2022, including annual synergies it was already planning togenerate from its combination with Monsanto as of 2022. Overall,the planned cost savings would help free up funds for a planned €35billion to be invested in the company’s future through the end of2022, it said, with R&D accounting for two-thirds of thissum.
Analysts estimate that the sale of the animal-health unit, thesmallest of the group’s four businesses, could fetch up to €7billion ($8 billion) while a sale of Coppertone and Dr. Scholl’scould raise roughly €1 billion.
Thursday’s announcement initially lifted Bayer’s share price byup to 4%, but the stock later erased most of its gain and traded0.7% lower.
While Bayer faced strategic challenges in its main activitiesbefore the Monsanto deal, the collapse of its share price in recentmonths and the uncertainty surrounding the Roundup lawsuits haveraised pressure on management to improve the group’s outlook.
Bayer said the restructuring would help it focus on its life-science strategy—essentially its crops and drugs businesses.Analysts had called such a move inevitable after Bayer took on alarge amount of debt—the company is targeting net debt of around€37 billion by the end of 2018—to fund the Monsanto deal.
In Crop Science, where Bayer is now the world’s largest providerof seeds and pesticides, the group said it would cut 4,100 jobs asit integrates the Monsanto acquisition. In pharmaceuticals, whichnow make up roughly half of total sales, the company said it wouldoutsource more Research and Development activities throughpartnerships or licensing deals.
This overhaul—in the making for the past year under the codename “Super Bowl”—will ax some 900 job cuts in R&D, and anadditional 360 through the closure of a production site in theGerman city of Wuppertal. The ensuing savings would be investedinto external research deals, Bayer said.
Some 5,500 to 6,000 jobs at central corporate functions wouldalso go, Bayer said, with all job cuts due to happen by the end of2021. Bayer said it would cut a significant share of jobs in itshome-market Germany.
The cuts come as Bayer is heading toward a period of slowersales growth in its prescription drugs as patents for top-sellingdrugs Xarelto and Eylea are due to expire from 2023. Analysts havebeen fretting over how Bayer planned to fill that looming gap.Theconsumer health division—which includes the flagship Aspirinbrand—would see some 1,100 jobs go and the disposal of twobrands—Coppertone and Dr. Scholl’s—whose sales had been sliding inrecent quarters.
Sales and profits at the over-the-counter-drugs unit have beendeclining in recent quarters, partly because of tough competitionin the U.S., where consumers have turned away from drugstores tocheaper, online shops. In the first nine months of 2018, sales fell7.7% to €4.12 billion.
The decision to sell the animal-health unit follows weeks ofBayer exploring strategic options for a business it no longer seesas core and is too small to flourish under its ownership.
Mr. Baumann said Bayer had identified a number of potentialbuyers for the unit but that it wasn’t in advanced talks with anyparty.
The Rhineland-based company said it would also sell a 60% stakein chemical park operator Currenta, a company whose relevance hadbeen waning since Bayer exited specialty chemicals businessCovestro . Analysts say the Currenta stake could fetch between €1billion and €2 billion.
- What problems/success the company has?
