Bayer hasn’t done enough to put its woes behind it

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It is often easier to rule things out than demonstrate a clear path forward. German weedkiller-to-aspirin conglomerate Bayer is a perfect example.

Its chief executive Bill Anderson made his case this week for why a break-up — long called for by some investors — would be difficult right now. What was less convincing was how his two-to-three-year turnaround plan would alleviate concerns about its total €45bn debt pile. Bayer’s shares are still bumping around near 19-year lows.

To his credit, Anderson, an upbeat Texan, did not try not to gloss over Bayer’s problems. These are largely, but not exclusively, a legacy of its $63bn acquisition of US crops company Monsanto in 2016.

“Badly broken”, Bayer’s four fundamental problems — its debt, costly weedkiller litigation, weak pharmaceuticals pipeline and internal bureaucracy — are barriers to pursuing a split-up in the near term, he argued.

In reality, creditors are also likely to have swayed the argument. Bondholders who bought into a diverse group do not like the prospect of holding debt in a smaller company riddled with problems. Much of Bayer’s debt is long-term but about €4.3bn of bonds mature this year.

For now, Anderson is trying to fix Bayer organically. He is pushing through a restructuring that should remove €2bn of annual costs from 2026. Bayer is taking a new approach to tackle litigation associated with the Roundup weedkiller it inherited from Monsanto, although details remain vague with about 54,000 cases outstanding. Bayer’s move last month to cut its dividend to the legal minimum allowed under German law for three years will help it reduce net debt to a range of €32.5bn to €33.5bn by the end of 2024, from €34.5bn at last year.

Bayer aims to reduce its leverage from more than 3 times net debt to ebitda to 2.5 times. Earnings this year, though, could fall by as much as 9 per cent, suggesting little progress.

Meanwhile, investors remain concerned Bayer may still have to increase its litigation provisions beyond the $6bn remaining. It needs further deals to replenish its pharmaceuticals pipeline. Exclusivity on its two top-selling drugs will start to expire in two years, yet many of Bayer’s deals have been for early stage assets that will take time to produce results.

Anderson ruled out a capital raise in a Financial Times interview. But without bolder action, its deleveraging route looks long and distinctly uncertain.

If selling equity is really off the table, a sale or spin-off of at least one division — namely consumer health — remains the only way to meaningfully tackle Bayer’s debt woes.