BAYN Bayer AG

By Ruth Bender 

BERLIN -- Bayer AG unveiled on Wednesday billions in new costs cuts to offset falling demand in agricultural products -- the market on which it had made a huge bet with its acquisition of Monsanto.

The German chemicals and pharmaceuticals company said the coronavirus pandemic would hit its crop-science business harder than anticipated as prices for various crops fell, consumption of biofuel decreased and competition in the soy market intensified.

Bayer, which spent $63 billion on Monsanto in 2018, said that it didn't expect market conditions to improve considerably in the near-term and that this would likely reduce the value of its crop-science business through impairment charges in the "mid-to-high single-digit billion-euro" range.

The company said it wouldn't meet its 2021 sales and cash-flow targets as the savings wouldn't completely offset declining sales. Bayer now expects sales to be flat next year instead of growing at roughly 4%, and sales this year to grow between 0% and 1% to between EUR43 billion and EUR44 billion, equivalent to between $50,4 billion and $51,6 billion, excluding currency effects.

Bayer's strategic expansion into agriculture has been mired in setbacks from the start. The acquisition of Monsanto exposed the German company to tens of thousands of plaintiffs suing the maker of Roundup weedkillers, alleging the herbicide causes cancer.

Bayer in June said it had reached deals to settle the bulk of cases before talks on finalizing these settlements stalled. Bayer said earlier this month it was making progress on a final deal.

The company is reworking a complex but crucial part of the settlement that would address future Roundup cases. Bayer says Roundup is safe and doesn't cause non-Hodgkin lymphoma.

The legal woes have weighed on Bayer's share price and sparked a shareholder revolt last year, but the company's board has stood behind Chief Executive Werner Baumann, the main architect of the Monsanto deal. Earlier this month, the board extended his contract until 2024.

Bayer said the pandemic-induced weakness in the agricultural market hadn't weakened its commitment to that part of the business.

"Despite the difficult market environment, the urgent need for innovative healthcare and agriculture solutions has never been more evident," Mr. Baumann said.

Bayer said the need for additional savings might lead to more job cuts. They come on top of existing plans to cut $2.6 billion in annual costs from 2022, which include a 10% cut to its workforce.

Additional cash generated through these savings would be invested in innovation, improving margins and bringing down debt, Bayer said. The company said it was still seeking opportunities to boost its pharmaceuticals division with bolt-on acquisitions or deals to license products in development. Bayer also said it would seek small acquisitions in its consumer-care division, a unit that had been struggling in the past but which Bayer said had performed strongly recently.

Write to Ruth Bender at Ruth.Bender@wsj.com

(END) Dow Jones Newswires

September 30, 2020 17:46 ET (21:46 GMT)

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