Plastics Placement

Bayer Readies Chemicals Unit for Possible €10 Billion Sale

Source: DAPD
Betting on healthcare.
  • Why it matters

    Why it matters

    Bayer is ditching its low-margin plastics production operations to focus on more profitable pharmaceutical and agricultural products.

  • Facts

    Facts

    • Bayer’s plastics operations could be worth as much as €10 billion ($12.9 billion), an analyst said.
    • Bayer’s plastics operations face increased competition from Asian and Arabic rivals, including Saudi Arabian state-backed Sabic.
    • The plastics business’s operating profit was €435 million in 2013, down 25 percent compared to 2012.
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    Audio

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Bayer, the German chemicals and pharmaceutical giant, said Thursday it would spin off and list shares in its plastics operations, which account for a quarter of its sales, in what is likely to be a gradual sale of the subsidiary to investors.

Bayer, which has annual sales of €40.2 billion ($51.8 billion), implied in a statement that it would progressively sell off its plastics business to investors. The company said the listing of shares in the plastic business, which it calls Material Science, would provide it with financial security.

The listing, Bayer said, would “give MaterialScience direct access to capital for its future development.” The business produces coatings and plastics known as polymers, which are ubiquitous components in products ranging from printers, cars and furniture.

Bayer, which has been led by its chief executive, Marijn Dekkers, since 2010, continues to restructure its bulk chemical operations, which is increasingly a commodity business with a volatile cycle and faces competition from lower-cost Chinese and Middle Eastern rivals.

In 2005, Bayer listed another low-margin business, its rubber, plastics and specialty chemicals operations Lanxess, on the Frankfurt Stock Exchange.

The sale of the plastics unit, which saw earnings before interest and taxes fall by 25 percent last year to €435 million, could fetch up to €10 billion, Kepler Chevreux analyst Fabian Wenner told Bloomberg.

Marijn Dekkers, CEO of Bayer. Source: DAPD
Marijn Dekkers, CEO of Bayer. Source: DAPD

Bayer is likely to use the money for more acquisitions.

“It could now look at a target, which can be bought with the proceeds,” Mr. Wenner told Bloomberg.

In May, Bayer agreed to buy some drugs operations from U.S. pharmaceutical firm Merck for $14.2 billion to become the leader in the Americas for over-the-counter medicines.

In addition to pharmaceutical products and chemicals, Bayer is also a major producer of insecticides, seed enhancement techniques and pest controls, which are organized in its crop science unit.

 

Bayer-Graph-Earnings-per-unit-MaterialScience

 

Bayer wants to focus on its most profitable businesses in pharmaceuticals and agricultural products and services. Its healthcare and crop science operations alone generated almost all of the firm’s operating profit of €4.9 billion last year. The two businesses generated 69 percent of total sales.

Investors greeted Bayer’s announcement, pushing the stock up 5 percent to a record €111.50.

Martin Dowideit is head of Handelsblatt Online’s companies and markets reporting team. Gilbert Kreijger is an editor at Handelsblatt Global Edition in Berlin. Contact: m.dowideit@vhb.de or Kreijger@handelsblatt.com

 

Bayer CEO Marijn Dekkers
Bayer CEO Marijn Dekkers

 

 

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