Analysis: Bayer immune to pharma's breakup bug?

Mon Jul 29, 2013 10:23am EDT
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By Ludwig Burger and Frank Siebelt

FRANKFURT (Reuters) - Investors banking on Bayer to embrace a trend in the pharma sector to split off non-core units may be too far ahead of the curve.

The diversified German healthcare group has an unusually high threshold for selling its odd-one-out MaterialScience unit, which is the world's largest maker of chemicals for insulation foams and transparent plastics for DVDs and car lights.

Bayer, whose bulging pharmaceuticals business could soon dwarf its plastics unit, has been billed as an overdue candidate to follow a global trend in healthcare to divest slower growing and maturing operations.

But banking sources have cautioned that a breakup could be a long way off because Bayer feels it would sell MaterialScience only at a knock-down price and cause outrage over job cuts.

MaterialScience unit head Patrick Thomas told Reuters that the parent holding is "a committed owner" but Bayer investors - seeing businesses elsewhere in the industry getting sliced and streamlined - are eager for clues what could challenge Bayer's commitment.

Abbott this year split off drug development into AbbVie, while Pfizer parted with its animal health unit Zoetis - and the biggest U.S. drugmaker on Monday took another step towards a potential breakup by internally separating its commercial operations into three business segments.

In Europe, the CEO of GlaxoSmithKline told Reuters in June that divestments at Britain's biggest drugmaker would far exceed acquisitions as it divest non-core operations.

Such moves have been welcomed by investors. Abbott shares, for example, outperformed the sector and the wider market significantly after it unveiled its planned split in 2011, while Pfizer and GSK have both enjoyed a re-rating, helped by hopes that their more focused businesses will be better able to leverage a number of promising new drugs.   Continued...

Board members of Bayer AG attend the annual general meeting in Cologne April 27, 2012. REUTERS/Ina Fassbender