Overdue Restructuring

Plastics Sale Could Reshape Bayer

Bayer Agrar-Sparte bleibt 2013 auf Rekordkurs
Blowing bubbles at Bayer.
  • Why it matters

    Why it matters

    Bayer’s decision to prepare for the sale of its plastics business could signal the beginning of a long-overdue restructuring of Germany’s largest pharmaceuticals maker, which could lead to higher profitability.

  • Facts

    Facts

    • Bayer’s share price rose by 5 percent after the spinoff was announced.
    • Valued at more than €90 billion, Bayer is viewed as too large to be targeted by competitors.
    • The sale raises questions about the future of the company’s agricultural chemical subsidiary.
  • Audio

    Audio

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It’s finally going to happen. Following years of speculation by industry experts and clamoring from investors, German pharmaceutical giant Bayer is now committed to spinning off its plastics subsidiary, Bayer MaterialScience. The marketplace rewarded Bayer with a 5 percent increase in its share price.

With the announcement of plans to list BMS, the Bayer chief executive Marijn Dekkers has taken the Leverkusen-based firm another giant step forward almost 10 years after it spun off its chemicals subsidiary, Lanxess.

As if moving in slow motion, Bayer is catching up with what other firms, including Hoechst and Imperial Chemical Industries, achieved in the 1990s. This kind of restructuring is unpopular in executive offices, something that is understandable considering how much of the company’s lifeblood and tradition is at play.

But industrial logic has made the separation of the plastics segment and the healthcare business a sensible decision. Business models and success measurements have changed greatly over the decades and most conglomerates have chosen to separate their pharmaceutical businesses from other operations. Bayer and Merck have been notable exceptions.

The time is right for Bayer to spin off the plastics operation because its healthcare business can sustain the entire company.

The time is right for Bayer to spin off its plastics operations because its healthcare business can sustain the entire company. Bayer has long been perceived on capital markets as a healthcare or life-science company, which has helped propel its valuation upward.

With a market valuation of more than €90 billion ($116.1 billion), Bayer is moving in the sphere of untouchables, too large and too wealthy for even aggressive competitors such as Novaritis or Pfizer to attack.

Spinning off BMS is logical, though Bayer management must face the question of why it didn’t take this step a couple of years earlier, when BMS was in a stronger shape.

Sooner or later, Bayer will confront questions about what to do with its agrochemical subsidiary, Bayer CropScience. At the moment, crop protection and seed treatment are attractive businesses with strong long-term growth prospects, but again the industrial links between agricultural products and pharmaceuticals and healthcare is, at best, a loose one.

It would seem Bayer’s metamorphosis is not complete. After step two, there should at some point be a step three.

Bayer CEO Marijn Dekkers
Bayer CEO Marijn Dekkers

 

The author is an editor in the companies and markets department. He can be reached at hofmann@handelsblatt.com

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