Bayer AG has engaged in strategic experimentation with various bankers to analyze potential break-up scenarios, and the findings indicate that substantial transformation within the German conglomerate will be challenging.
The Leverkusen-based company brought on two separate teams to assess the advantages and disadvantages of a potential break-up. Team Red simulated a theoretical activist campaign advocating for the division of Bayer’s businesses, while Team Blue provided advice on how to handle such a scenario.
Ultimately, Bayer’s assessment suggests that the company should refrain from responding to any possible calls for a break-up until after completing its own strategic review to avoid raising shareholder expectations. This conclusion comes as Bayer confronts a series of significant setbacks and a notable decline in share value.
The simulation also revealed that divesting Bayer’s consumer health sector could result in a substantial tax burden, potentially offsetting any potential benefits derived from such a deal. However, Bayer’s strategic review has yet to be completed, and the company may identify a more tax-efficient structure or a buyer willing to pay a significant premium.
Bayer is currently facing mounting pressure to address its high debt burden and navigate legal challenges, leaving its CEO with limited leeway as the company weighs potential break-up scenarios. This evaluation includes assessing the implications of selling the consumer-health business, conducting an IPO, or spinning off the division. Moreover, potential divestiture of its crop-science sector poses additional complexities due to legal liabilities and declining agricultural commodity prices.
The company’s CEO has emphasized that some investors are content with Bayer’s current strategy, which involves distinct units focused on pharmaceuticals, consumer health, and crop science. Nevertheless, activist investors, such as Bluebell Capital Partners, have renewed their calls for a split.
In light of Bayer’s recent setbacks, the company faces challenges related to resolving US litigation arising from products inherited through its acquisition of Monsanto in 2018, as well as concerns about the growth of its pharmaceutical unit following the halt of a key study.
As Bayer navigates these issues, the company’s stock has fluctuated, and its leadership team continues to evaluate how best to address its current challenges and opportunities.
