Bayer calls off break-up to tackle challenges for up to 3 years

Bayer (BAYGn.DE), opens new tab will hold off on plans to break apart the group for up to three years so that the new CEO can focus on problems including debt and litigation, leaving investors dubious about whether enough is being done to revive its fortunes.

"Our answer is 'not now' – and this shouldn't be misunderstood as 'never'," CEO Bill Anderson said on a media call, also citing separation costs and capital gains taxes on any asset disposals as reasons for the delay.

Anderson, who was hired last year to turn the business around, previously said he was examining options to separate, spin off or sell businesses. Reuters reported last month that no such action was on the cards for now.

The maker of drugs and farming supplies said that for the next 24 to 36 months it would seek to strengthen the pharmaceutical development pipeline, address litigation, reduce debt, and to further pursue job cuts and speed up decision making by managers.

The cutbacks will reduce annual costs by 2 billion euros ($2.2 billion) from 2026, it added.

Anderson faces a deluge of problems, most of which stem from the 2018 takeover of Monsanto for $63 billion.

These include U.S. litigation alleging harm from weed-killer glyphosate and other chemicals, a development setback for its most promising experimental medicine, weak agriculture markets and investor pressure to spin off or sell businesses.

The stock, which has lost close to 20% over the last 12 months, was down 1.6% at 1211 GMT, trading near its lowest point since 2005.

"The strategy is still vague and the question of group structure remains unanswered," said Ingo Speich, head of sustainability and corporate governance at Bayer shareholder Deka Investment.

"Regrettably, it does not seem that Bill Anderson has yet recognised the urgency of severe structural changes to the group that are required to remedy the mistakes of his predecessors," said Thomas Schweppe of investor advisory boutique 7Square.

The company guided that 2024 earnings before interest, taxes, depreciation and amortisation (EBITDA) would slip to between 10.7 billion and 11.3 billion euros on a currency-adjusted basis, down from 11.7 billion in 2023.

A consensus posted on the company's website showed analysts on average were expecting this year's earnings to be at the lower bound of the target range, while last year's figure was better than expected.

Anderson added he was "considering every possible means to bring closure" to U.S. lawsuits claiming that glyphosate has caused cancer in plaintiffs. That litigation wave is a key factor behind the company's loss of value by two thirds since the Monsanto takeover.

Bayer would vigorously defend itself but also look for solutions "outside the courtroom". The CEO said more action was to come but would not be drawn on details.

About 54,000 cases remain outstanding, even though U.S. and European regulators have labelled the product safe to use.

Bayer won a case last week but its track record in court has been spotty. The company settled cases for up to $9.6 billion in 2020 but failed to win approval for a proposal to handle future claims. It currently has $6.3 billion in provisions for more glyphosate payouts.

To shore up its finances, the German drugmaker has slashed dividends, keeping what analysts estimate would have been combined payouts of 6-7 billion euros over three years.

Bayer's net debt at the end of 2023 was up 8.5% to 34.5 billion euros. That burden has led some analysts to conclude a capital increase may become necessary. The company said it would seek to reduce net debt by 1-2 billion this year.

($1 = 0.9221 euros)