Bayer investor Artisan calls for break up

Artisan Partners Asset Management

25/08/2023 19:08

(Adds timing on strategy update in paragraph 6, background on
new CEO from paragraph 12, background on industry in last two
paragraphs)
    By Richa Naidu and Ludwig Burger
       LONDON, Aug 25 (Reuters) - Bayer  BAYGn.DE  is a
"conglomerate" that needs to make major changes including
"de-merging" two of its three business arms, investor Artisan
Partners told Reuters on Friday, as pressure mounts on the
German group's new CEO to bolster weak shares.
    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. 
    Bayer's new CEO Bill Anderson said this month he is not
ruling out any options as part of his review of the diversified
company’s strategy and structure, "leaving no stone unturned".
        He added he would provide an initial update in the
coming months and detailed plans in early 2024.
  
    Before taking the top job in June, Anderson said he was
keeping an open mind on whether to break up the company, as some
investors have demanded, saying other investors opposed it.
    Artisan is Bayer's sixteenth biggest investor, according to
Refinitiv data. It did not disclose the size of its stake.
    We 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, brought over from Swiss rival Roche  ROG.S ,
had a testing first few months at the helm, weighed down by U.S.
lawsuits claiming Bayer's weed-killer Roundup causes cancer and
facing pressure from investors demanding major change.
  
        The German company 
    said
     in an unscheduled statement last month that it was
projecting a steeper fall in earnings, zero free cash flow and
asset write-downs this year, in what some analysts suggested was
Anderson seeking to get bad news out quickly to allow for a
fresh start.
  
    Samra said that though the chairman of Bayer's supervisory
board, Norbert Winkeljohann, has not directly written a letter
back to Artisan, they have "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 it's
over-the-counter health products and pharmaceuticals units are
"sub-scale", low-margin and "probably more valuable in the hands
of somebody else".
    The farming seed and pesticides division Crop Science, the
second largest global supplier in the industry after China's
Syngenta, accounts for about half of Bayer's sales.
        Large pharma player have spun off non-prescription drug
businesses over the last year, with Johnson & Johnson  JNJ.N 
listing Kenvue  KVUE.N , and GSK  GSK.L  listing Haleon  HLN.L 
in 2022.    
    

 (Additional reporting by Ludwig Burger; Editing by Matt
Scuffham and Diane Craft)
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