Bayer Draws Attention from Activist Investors

13.01.2023 - As Bayer’s board prepares to search for a new CEO to succeed Werner Baumann, the German pharmaceuticals and agrochemicals group has attracted the attention of two activist investors interested in pulling its share price out of the doldrums and reaping the rewards.

As an initial step, both of the investors are calling for the board to replace Baumann with a new leader from outside Bayer. One of them told news agencies it also wants to replace supervisory board chair Norbert Winkeljohann — himself an outsider. Both apparently would seek to break up the company, as analysts have been urging for some time.

Baumann’s contract expires in April 2024, and the board is expected to begin sounding out the prospects for a new corporate chieftain following the annual general meeting in April this year. The 59-year-old German national has been in the hot seat almost as long as he has been in the CEO’s seat, thanks to his controversial move to acquire the world’s largest agrochemicals player, Monsanto.

Since closing the Monsanto deal in 2018 for $63 million, Bayer has paid or been ordered to pay millions to US plaintiffs who claim that Monsanto’s glyphosate-based Roundup herbicide causes cancer. Over the past five years, the company’s stock has lost an estimated 40% of its value.

First activist to announce an agenda for Bayer, at the beginning of the week was an unusual type of corporate investor, Jeff Ubben, head of hedge fund Inclusive Capital. Ubben has acknowledged that the fund holds almost 8.2 million shares in the German company, which translates into 0.8% of the equity, worth around €400 million.

The US national, who two years ago launched his environment and social impact investment firm focused on sustainability, said he is especially interested in increasing the sustainability potential of Bayer’s Crop Science arm as gene editing advances and the world focuses on the need for food security.

Considering the environmental and social impact of an investment is a “logical next step for hedge funds,” Ubben – who is on the board of the World Wildlife Fund – told UK newspaper Financial Times earlier. “Companies giving in to activist investors asking for more current returns and more buybacks aren’t working for society or nature.”

Pushing companies to tackle environmental and social issue, however, “can create big returns,” “he believes, and calculates that as a separate company Bayer CropScience could achieve returns similar to those of the DuPont agrochemicals spinoff Corteva.

While sharing Inclusive Capital’s desire to see an external candidate take the top job at Bayer, the primary motive of the company’s other activist investor, Bluebell Capital Partners, seems to be carving up the company into at least two, possibly three separate units, to produce bigger returns.  

In a first step, sources close to Bluebell – which has not disclosed how much stock it holds in Bayer – told news agencies it would first push for a sale of the company's consumer health unit and, at a later stage, advocate for a separation of the pharmaceuticals and agriculture businesses.

Consumer health products, such as its world famous analgesic Aspirin and its Clarityn allergy relief, account for just over 10% of Bayer's sales. CropScience generates nearly 50% of group sales, with Pharmaceuticals accounting for around 40%.

Hedge fund Elliot Management, which was instrumental in getting GSK to divest its consumer health arm, confirmed in 2019 that it had acquired a stake in Bayer, also without giving details on the extent of the shareholding. Some think the fund’s manager, Paul Singer, could add Elliot’s name to the list of those interested in pushing for change in Leverkusen.

Author: Dede Williams, Freelance Journalist