Breakingviews: Bayer’s new CEO plants seed of future breakup

Werner Baumann’s exit from Bayer lays fertile ground for a breakup. On Wednesday, the $66 billion drugs-to-seeds company said it was replacing its embattled chief executive with Roche’s former pharma boss Bill Anderson, effective June 1. Given the new chief’s background, investors have good reason to prepare for a spinoff of the crop science division.

Veteran leader Baumann was on borrowed time. The German conglomerate had been misfiring since its disastrous takeover of Monsanto in 2018, which Baumann sponsored. The acquisition dragged Bayer into a wave of lawsuits from claimants alleging its Roundup weedkiller caused cancer. The risk of further litigation and other setbacks in its pharmaceutical business depressed its shares. It’s little wonder Inclusive Capital Partners activist investor Jeff Ubben pushed for Baumann to go.

Anderson’s extensive pharma and biotech pedigree will be a key investor focus. Norbert Winkeljohann, chairman of Bayer’s supervisory board, had a number of options. He could have promoted finance officer Wolfgang Nickl or hired a conglomerate specialist to run more efficiently Bayer’s sprawling businesses of plant food, consumer goods and pharma. Putting a candidate with no agriculture background in charge suggests a spinoff of the seeds and pesticides division is on the cards.

The numbers certainly stack up. If Bayer’s crop science unit was valued on the same 12 times 2023 EBITDA multiple as U.S. rival Corteva, it could be worth 76 billion euros, according to Breakingviews calculations based on UBS estimates. Meanwhile its consumer drugs division, which makes hay fever medicine Claritin, may be worth 18 billion euros if valued on the 12 times multiple of Durex condom maker Reckitt Benckiser. Finally, its prescription drug business could command 50 billion euros on the same 8 times multiple as pharma heavyweight Sanofi. Summing it all up and taking out net debt, pension liabilities and 6 billion euros of potential litigation charges, Bayer’s equity could be worth 96 billion euros. That’s over a third more than its current market value.

A split would come at an interesting time. Agrichemical rival Syngenta is preparing a Shanghai listing which could open the door to a combination with Bayer’s crop division. Meanwhile GSK, having spun off its consumer unit Haleon, is now a standalone pharmaceutical business and may look to buy a chunky rival. Lastly, America’s Johnson & Johnson is preparing to spin off its consumer division, creating an opportunity for deals involving its remaining prescription drug business.

Bayer’s narrow choice of CEO sets up a wide range of outcomes.