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Bayer is facing a need for significant transformations, which involve the “de-merging” of two out of its three main business divisions, according to statements made by investor Artisan Partners to Reuters on Friday.
As per the report, this call for change joins a growing chorus of demands for transformation from various other investors.
Earlier this year, activist shareholder Bluebell Capital Partners had also advocated for a breakup of the company. Furthermore, prominent investors such as mutual funds group Deka had strongly criticized the previous leadership of the company. Certain investors have suggested that a straightforward solution would be to split the healthcare and agricultural segments into separate entities.
The appeal from Artisan Partners will increase the demands on Bill Anderson, who was recruited from Swiss competitor Roche to assume the CEO position in June. Anderson has been assigned the responsibility of rejuvenating Bayer’s stock value, which has lagged behind its competitors due to the ongoing financial burdens stemming from legal issues related to US weed killer litigation.
Also Read: Roche Pharma CEO Bill Anderson to leave company
Reuters reported that Artisan wants the drugs-to-pesticides company to find new owners for its over-the-counter and pharmaceutical units, it said.
“Recently we wrote a letter to the conglomerate Bayer — and it is a conglomerate,” David Samra, founding portfolio manager of Artisan’s International Value team, said in an interview.
Bayer has a “whole host of problems” including “too much debt,” Samra said.
Anderson said this month he was not ruling out any options as part of his review of the diversified company’s strategy and structure, “leaving no stone unturned”.
“He will provide an initial update in the coming months and detailed plans in early 2024″, he added.
Prior to assuming the role of CEO, Anderson had expressed a willingness to consider various options, including the possibility of splitting up the company. However, certain other investors have voiced their opposition to this course of action.
According to Refinitiv data, Artisan Partners holds the 16th largest stake in Bayer. The exact size of its investment has not been disclosed.
Artisan suggested “that they cut the dividend to zero because they need the capital to effectively operate and reinvest back in their business,” Samra said, adding that the letter was sent prior to Bayer’s earnings results announcement on August 8.
“Then in their earnings release, the company specifically came out and said they’re committed to their dividend which is the exact opposite of what they should be doing in the long-term best interest of their business.”
Bayer declined to comment.
Anderson has inherited several challenges from his predecessor Werner Baumann, including US lawsuits claiming Bayer’s weed-killer Roundup causes cancer.
In an unexpected announcement last month, the company conveyed that it anticipates a more significant decline in earnings, no available free cash flow, and the need for asset write-downs within the current year. Certain analysts speculated that this move by Anderson might have been aimed at promptly disclosing unfavorable news, possibly to facilitate a new beginning for the company.
Samra said the chairman of Bayer’s supervisory board, Norbert Winkeljohann, has not directly written a letter back to Artisan, but said Artisan had “been in contact” with the company.
Samra said Artisan “has not suggested specifically how (Bayer) should restructure their business” in the letter.
He said in the interview that only Bayer’s Crop Science unit was “properly scaled” with “long-term advantages”, while he called its over-the-counter health products and pharmaceuticals units “sub-scale”, low-margin and “probably more valuable in the hands of somebody else”.
The Crop Science division, responsible for agricultural seeds and pesticides, holds a prominent position within Bayer, constituting approximately fifty percent of the company’s total sales. It stands as the second-largest global contributor in this sector, trailing behind China’s Syngenta.
In the past year, significant pharmaceutical companies have opted to divest their non-prescription drug segments. Johnson & Johnson, for example, listed Kenvue, while GSK listed Haleon in 2022.
(With inputs from Reuters)
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