Bayer Takes On Investor Worries -- WSJ
December 06 2018 - 2:02AM
Dow Jones News
Shareholders have been spooked by operational problems, Monsanto
acquisition
By Ruth Bender
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 6, 2018).
BERLIN -- Germany's Bayer AG Wednesday laid out ambitious sales
and profit targets in its latest effort to convince the market it
is serious about boosting profits, reducing debt and stopping a
downward spiral in its stock price that has put management under
heavy pressure.
The chemicals and pharmaceuticals company is dealing with a
string of long-term challenges and the fallout from its recent
acquisition of Monsanto Co., a deal that was designed to strengthen
Bayer's strategic position but ended up spooking investors.
"We are not happy at all with the recent development of the
company and the stock," Chief Executive Werner Baumann said in
London at the company's first gathering with investors since taking
over Monsanto this summer. "Your disappointment is our
disappointment and all of us will do everything we can to bring the
value of our company back into the stock."
Investors and analysts had been waiting for Wednesday's event to
offer details about how Bayer planned to fix operational problems
in its drugs businesses and reap the benefits of its $63 billion
acquisition of Monsanto.
An August jury verdict granting a plaintiff high damages against
Monsanto raised doubts in some investors about the appeal of the
deal. Bayer shares have lost roughly 30% since the jury ruled
Monsanto weedkillers containing the chemical glyphosate had caused
the plaintiff's cancer. Investors fear a protracted legal battle
with an uncertain outcome will consume time and resources and end
up in costly payouts for Bayer.
Mr. Baumann, who brokered the Monsanto acquisition just days
after becoming CEO in 2016, said Bayer would face roughly a dozen
new trials in 2019 and reaffirmed the company's conviction that
glyphosate was safe to use and that Bayer stood good chances of
winning in court. But he was quick to move on to topics whose
resolutions aren't in the hands of U.S. jurors.
Shares took some respite on Wednesday as analysts were
positively surprised by some of Bayer's medium-term targets. In
early afternoon trade, shares were trading 1.3% higher against a
lower DAX index.
Bayer said it aimed to grow sales by 4% next year and between 4%
and 5% in the following two years as it turns around its
consumer-care business, overhauls research and development at its
prescription drugs business and integrates Monsanto into its
crop-science business. The target excludes currency shifts.
The company, based in Leverkusen, Germany, also wants to boost
earnings before interest, taxes, depreciation and amortization,
excluding one-off items, to EUR16 billion ($18.2 billion) in 2022
from a pro-forma of EUR11.5 billion this year and grow
free-cash-flow generation by 18% on average each year to a total of
about EUR23 billion between 2019 and 2022, two goals that beat
consensus expectations.
Markus Mayer, analyst at Baader Bank AG, said the free-cash-flow
target was a positive surprise.
Bayer's targets assume drastic cost-cutting measures the company
announced last month. The company caught investors by surprise in
late November with a plan to cut 10% of its global workforce, which
Mr. Baumann said was the most comprehensive job-cutting plan in the
company's 155-year history. Bayer also plans to sell its
animal-health business and foot-care brand Dr. Scholl's and
sunscreen products Coppertone as it wants to focus resources on its
core drugs and agriculture operations.
Bayer said it would use the higher cash flow and some proceeds
from asset sales to increase dividends in the future and would even
consider share buybacks, independent of how the glyphosate cases
turn out. The group also wants to bring down net debt, which is
expected to reach EUR36 billion by the end of the year due to the
Monsanto purchase.
Write to Ruth Bender at Ruth.Bender@wsj.com
(END) Dow Jones Newswires
December 06, 2018 02:47 ET (07:47 GMT)
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