A merger wave among agricultural-chemicals makers may entice incoming Bayer boss Werner Baumann to put the German drugmaker's crop science unit in play. A sale or the like could fetch up to 39 billion euros and would complete the company's transformation into solely a pharmaceuticals manufacturer. Yet the group's record revenue and rising profit mean there's no pressure on Baumann to make a move.
Despite a somewhat disappointing profit in the fourth quarter of 2015, outgoing Chief Executive Marijn Dekkers leaves the company in rude health. Overall sales in 2015 grew 12 percent over the year before to a record 46.3 billion euros, and operating profit rose 16 percent to 6.3 billion euros.
Dekkers has turned a chemical conglomerate into a focused life sciences group. The strategy has paid off handsomely for investors. Since Dekkers took over in October 2010, Bayer has generated a total shareholder return of 102 percent, outperforming rivals like Sanofi - whose return over the same period has been 70 percent - or Novartis, which has posted a 58 percent return, according to Thomson Reuters data.
Bayer's crop sciences division may hold the key to unlocking value, especially since the sector is in a merger frenzy. The tie-up between DuPont and Dow will create a giant with almost double Bayer's agricultural-chemical sales. Swiss crop-protection manufacturer Syngenta, which repelled an approach by Monsanto, is being bought by ChemChina for $43 billion.
A joint venture between Monsanto and Bayer may be one potential option, according to industry analysts at Berenberg, though Bayer considers crop sciences as a core business and would be a reluctant seller.
The Syngenta transaction, though, should make a deal tempting. ChemChina is paying 15.3 times 2016 EBITDA for Syngenta, while Bayer trades at around 9 times EBITDA, Thomson Reuters data show. Barclays estimates Bayer's crop sciences division EBITDA at 2.55 billion euros in 2016. On a Syngenta multiple, the unit - which accounts for less than a quarter of the group's overall EBITDA - could be worth as much as 39 billion euros.
Baumann can certainly bide his time. But if the opportunity to do that kind of a deal arises, he might not hesitate to strike.