Bayer prepares to split
19 Apr 2004
German chemical major Bayer is to split off a large portion of its chemicals business into a new organisation called Lanxess. The new company will begin trading in early 2005, the company says.
The company name, which Bayer says combines the French word 'lancer', to set in motion, with the English 'success', was chosen from 3700 options. Of these, 1200 were submitted by 1000 employees of the new company, while 2500 came from a specialist agency. 'It conveys our credo - we are aiming for success, as quickly as possible,' says chief executive-designate Axel Heitmann.
The split will leave Bayer itself with three main business areas - health care; nutrition, through Bayer CropScience; and high-tech materials, through Bayer MaterialScience. Lanxess will comprise the chemicals operations, with the exception of two businesses - HC Starck, which produces sheets and powders of refractory metals such as tungsten and molybdenum and Wolff Walsrode, which makes leather chemicals, cellulosics, and paper chemicals - and about a third of the polymers business.
The Lanxess businesses are heavily cyclical and are currently suffering from a downturn. Last year, it lost 1.3billion Euros in terms of earnings before interest and taxes (EBIT), a figure which also includes 'many special charges', according to Bayer chairman Werner Wenning. Nevertheless, Wenning is confident that an upcoming upturn will lead to an improvement, along with cost-cutting measures.
'We therefore believe that there will be a strong increase in EBIT of Lanxess before special items and expect it to post positive net earnings for the year from a standalone perspective,' he says.
The company has not yet decided whether the split will take the form of a spin-off to existing shareholders or an Initial Public Offering on the stock market. This, Wenning says, is likely to be decided at a special meeting towards the end of this year.
Overall, Bayer reported an increase in EBIT before special items of 67% in 2003, although high special charges led to an overall net loss of 1.4billion Euros. Sales declined 3.6% to 28.6billion Euros, although much of the decline was due to adverse exchange rates: in local currencies, Wenning says, sales increased by 5%.
The continuing businesses had mixed fortunes, with CropScience sales up 23% to 5.8billion Euros owing to the incorporation of Aventis Crop Sciences, which Bayer bought last year. HealthCare sales climbed 9%, but write-downs for the blood plasma business, which is earmarked for divestment, and restructuring charges sent EBIT plunging by 43% to 334million Euros.