Things are heating up at the German Bayer Group at the moment. While a new lawsuit has been filed against the company in the U.S. in the legal dispute over the weed killer Roundup, fund companies and activist investors are criticizing the agricultural and pharmaceutical group's unwillingness to make changes. A look at the share price performance makes the dissatisfaction clear: Bayer currently weighs in at a stock market value of EUR 55 billion, around 12% less than the price paid in 2018 for U.S. seed giant Monsanto. The blue-chip also clearly lags behind the overall market. Over the past five years, Bayer's share price has slid by almost half, while the DAX has risen by a tenth.
For investors and hedge funds, the solution is obvious: split up. According to media reports, for example, the activist investor Bluebell is pushing for a sale of the "Consumer Health" over-the-counter health products business. The fund company Union Investment, which holds a 1.4% stake in Bayer, shares this opinion. "It would have been a matter for the Supervisory Board to initiate a spin-off of Consumer Health," said fund manager Markus Manns, criticizing Bayer Supervisory Board Chairman Norbert Winkeljohann in a recent interview. He points to other boards of directors, such as Novartis, who are much more active in creating value for their shareholders.
Since Bayer has always rejected all demands in the past, investors' hopes are currently pinned on a new boss. In this regard, there could be news before the end of the year. The contract of CEO Werner Baumann, who did not exactly cover himself with glory with the acquisition of Monsanto and its highly controversial active ingredient glyphosate, expires in April 2024. Suppose the group were to decide in favour of an external successor. In that case, market participants believe this would increase the chance that the successor would actively review the group's structure in their own hands. Prominent examples such as Daimler show that industrial conglomerates are discontinued models. At the end of 2021, the group split into two independent business units.
The goal of divisional spin-offs is to increase value as a whole. At Bayer, there would be numerous options in this regard. The sale of the Consumer Health business described at the beginning of this article would not be the only way to disentangle the Group and reduce the immense mountain of debt of around EUR 36 billion. Even a split of Pharmaceuticals and Agriculture could be on the table under new management. Speaking of pharmaceuticals, Bayer strengthened its healthcare business a few days ago with an acquisition in the promising field of radiology. The Leverkusen-based company borrowed the provider of an artificial intelligence platform technology Blackford Analysis. "Radiology is now strongly anchored in Pharma's strategy," says division head Gerd Krüger, explaining the deal, adding, "We are one of the big growth drivers within Pharma." Currently, the radiology business accounts for about one-tenth of the Pharmaceuticals Division. By 2030, Bayer aims to exceed the radiology market's average annual growth rate of 5% in the business.
Current business performance shows that the individual divisions are performing well. In the first nine months of last year, Crop Science grew by 26.3%, Consumer Health by 17.2% and Pharmaceuticals by 7.5%. This led to an overall increase in sales of 17.5% to EUR 38.7 billion, with profits growing faster than sales. Earnings before interest, taxes, depreciation and amortization more than doubled. As a result, the company reaffirmed its guidance for the year, which had already been raised. However, Bayer CEO Baumann is somewhat more cautious for the current fiscal year. As a result of high inflation, the manager expects higher costs, but without being more specific. Market participants are taking the uncertainties into account: After a jump in earnings in 2022, the analyst consensus for this year assumes stagnating profits. In 2024, Bayer is expected to return to its growth path and increase earnings per share by around 7%.
So 2023 could be a year of transition in many respects. Bayer is taking a breather in its operating business, the search for a successor to CEO Baumann is gradually getting underway, and investors remain on guard in the background. So it may take some time to make final decisions about Bayer's future. This time is best bridged with sideways products. The new Softcallable Barrier Reverse Convertibles on the DAX, which are offered in CHF and EUR, each have a risk buffer of 35%. If the German blue-chip leaves the barrier intact during the maximum term of 18 months, the maximum yield will be achieved. The product listed in CHF has a coupon of 8.00% p.a., in EUR the maximum yield is even 9.50% p.a.. For both BRCs, the issuer's soft callable feature allows for early redemption after half a year at the earliest.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.