Chemical Drug Giant Bayer Buys Out Aventis

Chemical Drug Giant Bayer Buys Out Aventis

International Herald Tribune
October 3, 2001

Bayer Seals a Deal For Aventis Crop Unit;
Purchase Sets a Record for German Company

BY: John Schmid
FRANKFURT, Germany

Bayer AG said Tuesday it would buy the agrochemical business of Aventis SA
in a deal worth 7.25 billion ($6.66 billion) and would cut thousands of
jobs. Bayer will more than double its agrochemicals activity by merging its
business with Aventis CropScience, making it No. 2 in the industry behind
Syngenta AG of Switzerland.

Aventis CropScience employs 15,300 staff in more than 120 countries and has
annual sales of 4 billion. It has a 16 percent share of the world market for
crop protection, including pesticides, herbicides, fungicides and
insecticides. Bayer and Aventis have been in talks since July on the
conditions of the sale. Manfred Schneider, chief executive of the struggling
German chemicals giant, said he expected the acquisition to substantially
lift Bayer's earnings power. It is the biggest takeover in Bayer's 138-year
corporate history. The magnitude of the takeover will sap the ability of
Bayer to make other acquisitions for the time being. "Our reduced borrowing
power will prevent us from making further acquisitions on this scale," the
chief financial officer, Werner Wenning, said. But the move singles out
Bayer as one of the few chemicals conglomerates that resisted pressure by
investors to break up their diverse operations. Bayer said that it would not
take on any liability for lawsuits pending against CropScience for its
genetically modified corn, StarLink. Last year, StarLink corn found its way
into various processed foods, although it was never approved for human
consumption. The purchase also spells success for Aventis, which becomes a
pure pharmaceuticals company after lagging behind the industry trend of
separating pharmaceuticals from agrochemicals and other businesses. Other
competitors began the process of spinning off businesses years earlier.
Novartis AG of Switzerland sold its agribusiness unit last year, which went
into creating Syngenta. That followed similar moves by AstraZeneca PLC in
Britain and American Home Products Corp. in the United States. The move
positions Aventis for future expansion, with 3.7 billion in proceeds from
the divestment of its 76 percent stake in CropScience. "This was a key step
before Aventis could consider further expansion in pharmaceuticals," Susan

Haylock, analyst at Deutsche Bank AG in London, said.
Aventis needs to consolidate its own cross-border business, formed from the
merger in 1999 of Hoechst AG of Germany and Rhone-Poulenc SA of France,
before tackling a major acquisition, analysts said. Aventis is the world's
No. 5 drugmaker and will expand more easily without an awkward presence in
bulk chemicals.

Schering AG of Germany, which owns the other 24 percent of CropScience, also
has narrowed its focus on biotechnology and drugs with the sale. Schering
said it expected to reap 1.5 billion from the deal. "Schering is now a pure
pharmaceuticals player," its chairman, Hubertus Erlen, said. "The proceeds
will substantially increase Schering's financial potential for further
acquisitions, cooperations and internal growth opportunities," Mr. Erlen
said.

Bayer's agrochemical group has 7,800 employees and 2.5 billion in annual
sales.

Bayer said it expected to eliminate some 4,000 jobs, or 15 percent of the
combined work force in the crop-protection sector.
That comes on top of job cuts totaling 5,250 announced in its other
businesses earlier this year.

Bayer in August withdrew a cholesterol-lowering drug, sold under the brand
names of Baycol and Lipobay, after it was linked to 50 deaths and spawned a
wave of lawsuits. Bayer lost a third of its market capitalization since the
Aug. 8 recall of the anti-cholesterol product, which ranked as Bayer's No.
3-selling drug.

Mr. Schneider, the Bayer chairman, continues to adhere to the old school of
German management. He prefers what he calls a "four-pillar" company that
encompasses bulk industrial chemicals, polymers, high-end drug operations
and pesticides.


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