INTERVIEW: Bayer Takes More Cautious Financial Stance

Date : 06/15/2012 @ 9:32AM
Source : Dow Jones News
Stock : Thermo Fisher Scientific (TMO)
Quote : 165.33  -1.37 (-0.82%) @ 4:03PM

INTERVIEW: Bayer Takes More Cautious Financial Stance

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   By Natali Schwab and Friedrich Geiger 
 

LEVERKUSEN, Germany--German drug-and-chemicals giant Bayer AG (BAYN.XE) has tightened its financial policy due to growing risks in the European market and concerns about the single currency zone.

The euro-zone crisis has made Bayer more cautious, and its financial policy is more conservative than it was four or five years ago, Chief Executive Marijn Dekkers told Dow Jones Newswires in an interview.

"We monitor our bank risks every day," he said. "We deposit larger amounts only at banks with good creditworthiness and only with short duration or against collateral."

Many companies have drawn up plans to deal with the risk of a deepening European financial crisis and Greece's possible default on its debts and exit from the euro zone, examining contingencies such as paralysis in cross-border payments, civil unrest and the breakup of the single currency.

Mr. Dekkers said that though Bayer is relatively relaxed about the Greek market itself, where it makes just 0.5% of its revenue, a protracted downturn in Europe, which a Greek exit would likely bring about, would be costly for the company. Bayer generates about 40% of its 36.5-billion-euro ($46.1 billion) annual sales in Europe.

"However, I do believe the European Central Bank and Europe's politicians won't let that happen and will work hard against such a scenario," Mr. Dekkers said.

Bayer isn't the only pharmaceutical company to express concern about a breakup of the euro zone. Earlier this year, GlaxoSmithKline PLC (GSK) said it was managing its cash much more cautiously to reduce its exposure to the euro. The company is sweeping cash daily back to the U.K. from banks in euro-zone countries, the U.K. drug maker told Dow Jones Newswires in February.

To countenance weakness in Europe, Bayer is aiming to increase its exposure to emerging markets to cash in on growth and rising incomes, Mr. Dekkers said.

He said the company is particularly keen on acquisitions in the areas of seed production and health care, but doesn't see the need for major takeovers.

"We look at everything that would bring us forward in the field of health care. The same applies to our agricultural business CropScience, where we want to widen our scope in the field of seeds."

Bayer was recently linked with Pfizer Inc.'s (PFE) animal health unit, which is now preparing for an initial public offering.

Asked if Bayer had been interested in buying the unit, Mr. Dekkers said non-committedly, "We are interested in animal health in general."

Bayer this month agreed to buy the melon seed business of U.S. based Abbott & Cobb Inc., with around 30 employees. The demand for produce is increasing worldwide, and this segment is of crucial importance for the CropScience unit, Bayer said at the time.

Mr. Dekkers isn't concerned that the size of Bayer's takeovers may seem underwhelming. He said Bayer is large enough to realize the projects that offer the best chances from a strategic perspective. He added that it was clear that his task would be of evolution, not revolution, when he became CEO in 2010.

In any segment, Mr. Dekkers said he wants to avoid hostile takeovers.

"This is imaginable only in exceptional circumstances" and is freighted with difficulties, he said. "At Bayer, we've never taken this route."

As to Bayer itself becoming a takeover target, Mr. Dekkers said there is "absolutely no indication" of that.

Mr. Dekkers said he is not considering launching a bond despite favorable market conditions. "We have enough liquidity," he said.

When Mr. Dekkers took the helm at Bayer, some observers expected him to make wholesale changes to Bayer's business portfolio, considering that in his tenure as CEO of Thermo Electron he merged the U.S. laboratory equipment maker with peer Fisher Scientific.

At the same time, Mr. Dekkers' predecessor at Bayer, Werner Wenning, had already changed Bayer significantly. Under Mr. Wenning, Bayer bought pharmaceutical company Schering AG and Roche AG's (ROG.VX) over-the-counter-drug business. He also sold Bayer's diagnostics division to Siemens AG (SIE.XE) and spun off parts of the chemicals business via the initial public offering of Lanxess AG (LXS.XE).

With a market capitalization of about EUR41 billion, Bayer is much smaller than other health-care companies such as Johnson & Johnson Inc. (JNJ) or Novartis AG (NOVN.VX). Prescription medicines accounted for EUR9.9 billion of Bayer's sales in 2011.

Write to Natali Schwab at natali.schwab@dowjones.com and Friedrich Geiger at friedrich.geiger@dowjones.com




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