Bayer's Transformation Gets Underway

With the troubles of 2001 behind it, drugs and chemicals giant Bayer AG said Wednesday it had set itself two major goals for 2002: a complete group restructuring and a clear improvement in profit.

Both targets are closely linked as higher earnings are to be achieved mostly through divestments and cost reductions, chairman Manfred Schneider and his designated successor, Werner Wenning, explained at Bayer's results conference on Wednesday.

Schneider said that divestments were expected to raise 1 to 2 billion euro, while net savings from cost-cutting measures were forecast to start paying off as early as this year, with savings of more than 500 million euro ($441 million).

Bayer's cost-cutting program is aimed at generating savings of 1.8 billion euro a year from 2005. Among the activities up for sale are domestic pesticides, fragrances producer Haarmann & Reimer (H&R), Rhein Chemie Rheinau and a shareholding in Polymer Latex.

Schneider said that several parties were interested in a complete takeover of H&R. A binding offer is expected by May and a sales agreement during the course of the summer.

Selling to create a new Bayer

The same was said of Rhein Chemie. The shareholding in Polymer Latex is also to be sold before the end of the year, Schneider said. The lion's share of Bayer's real estate assets was already sold to Essener Treuhandstelle GmbH earlier in the year.

Once rid of these fringe activities, Bayer plans to reorganize itself into a management holding company with four pillars, which will have the legal status of stock corporations, plus three services companies.

"We intend to create a new Bayer," Schneider said.

The new independence of the subsidiaries is to give them greater flexibility, in particular in their search for partners.

Wenning said he expected the new structure to unleash synergies running into three-digit millions of euros. But he said the restructuring measures were aimed primarily not at bringing down costs but at improving the units' competitiveness.

Restructuring the health business

For Bayer's health business, the search for partners continued to take priority, Wenning said. The group had already signed a letter of intent with Aventis Behring on the creation of a joint venture in blood products, he pointed out.

It was also in search of a partner for its chemicals business, he said. But while the group is focusing its efforts on restructuring, business in the first few months of 2002 was slow.

"January was disappointing. February was a little better, according to preliminary data, and March has brought some improvement in sentiment," Schneider said in summing up the first quarter.

Bayer said it was not possible to provide a reliable forecast for the full year, owing to current economic uncertainties.

"For now, we await further developments in the first quarter," Wenning said. Bayer's business in 2001 certainly demonstrated how quickly forecasts can become obsolete.

While the group's polymer and chemicals businesses struggled with the poor economy, its drugs business was rocked by a series of mishaps.

Bayer disasters

It was hit hardest by the loss of its best-selling anti-cholesterol drug Lipobay, which it decided to withdraw from the market following several deaths from side effects among users. The debacle cost the group around 1 billion euros.

As a result, operating profit last year slumped 51 percent to 1.6 billion euro, and net profit by 47 percent to just under 1 billion euro. Bayer's shareholders will have to foot the bill: the dividend in 2001 will fall to 0.90 euro cents from 1.40 euro in the previous year.

Nevertheless, the figures presented on Wednesday still exceeded analysts' expectations. "Bayer's figures are very robust," said Trudbert Merkel, fund manager at Deka. Shares in the group rose 0.79 percent to close at 39.36 euro on Wednesday.