Bayer shares close weaker: Bayer adjusts dividend policy to reduce debt February 20, 2024

Even under the financial pressure of US legal disputes worth billions, Bayer is cutting its dividend.

The pharmaceutical and agricultural chemical company announced on Monday shortly before the stock market closed that only the legally required minimum should be paid out for three years. This would result in a dividend of 0.11 euros per share for 2023, which will also be proposed to the general meeting in April. The cuts are related to the level of debt, high interest rates and a tense situation with free cash flow. The step does not come as a surprise.

In view of the legal and operational difficulties, analyst Charlie Bentley from the investment house Jefferies had already pointed out in November that the dividend would actually have to be canceled in order to get the balance sheet under control.

“Reducing our debt and increasing our flexibility are among our top priorities,” said Bayer CEO Bill Anderson, according to the statement. The new distribution policy, which also incorporates suggestions from investors, should help.

Investors focused on dividends are now likely to sell stocks, as are funds that invest in high-dividend stocks. Overall, given the company’s condition, the payout cut is likely to be well received by investors, wrote analyst Richard Vosser from the US bank JPMorgan in an initial reaction. Ultimately, Bayer will save around 6 billion euros over three years.

Bayer is currently in a difficult situation. The wave of lawsuits in the USA over the alleged cancer risks of weed killers containing glyphosate has been bothering the company for years and has already cost billions. Analysts also see major financial risks from PCB lawsuits in the USA, an environmental toxin that has been banned for decades.

Both are a legacy of the US agrochemical company Monsanto, which it took over in 2018 for over 60 billion US dollars, which the then Bayer boss Werner Baumann pushed through despite the resistance of a number of investors. After years of price decline, the group is currently only worth 28.4 billion euros on the stock exchange as of Monday’s close. The papers ended Monday trading at 28.90 euros. For comparison: Before the first defeat in a US glyphosate trial – this was what really got the wave of lawsuits going – the shares cost a good 93 euros.

To make matters worse, Bayer’s existing best-in-class drugs will bring in less and less money due to patents gradually expiring, with no similarly lucrative follow-up drugs in sight. At the end of 2023, an important study on a drug that was supposed to help close the gap flopped.

In view of all these problems, the dividend cut is initially just a bit of positive news for Jefferies expert Bentley. This would significantly reduce the outflow of cash, he wrote in an initial reaction on Monday. Nevertheless, the measure also illustrates the extent of Bayer’s financial and operational problems. Further extensive strategic measures are needed to repair the balance sheet.

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One such measure – probably also discussed within the group – could be the sale of part of the company, in whole or in part. According to experts, however, in the current environment, only the consumer health sector involving over-the-counter medications is likely to be considered.

Analysts and shareholders are therefore looking forward to the beginning of March with great anticipation. Then Bayer CEO Bill Anderson, who only took over the helm in June 2023, wants to present his plans for the future of Leverkusen.

Bayer: Start of phase II study against venous thrombosis – further indications possible

Bayer is investigating a novel active ingredient against deep vein thrombosis (DVT) in a clinical phase II study. The drug, which still goes by the name BAY3018250, is a so-called anti-alpha2 antiplasmin antibody, as the pharmaceutical and agricultural chemical company announced on Tuesday. It is intended to dissolve thrombi and prevent the formation of new blood clots. It is also being investigated whether the antibody could also offer a treatment option for medically relevant indications. This probably means cardiovascular diseases.

Developing and testing new drugs takes years. Successful phase II studies are then followed by the approval-relevant phase III studies. Even if successful, approval of the new antibody would still take a very long time.

Bayer currently offers Xarelto, an anticoagulant that brings billions of euros into its coffers every year. However, the patents for the drug are gradually expiring in different countries. This creates competition from generics and biosimilars, which puts pressure on prices and sales. It was only towards the end of 2023 that one of the approval-relevant phase III studies on the potential Xarelto successor Asundexian flopped; it was about patients with atrial fibrillation and a stroke risk flopped.

Bayer shares with no clear direction after a significant dividend cut

Bayer’s long-suffering investors will face the next setback on Tuesday when the agricultural and pharmaceutical company slashed its dividend. However, traders and analysts viewed the step as partly positive.

The reduced dividend to reduce the debt burden should be seen as a necessary step, said one market participant. For Barclays analyst Emily Field, it is one of the most plausible options Bayer has to address its balance sheet problems.

In XETRA trading, Bayer shares lost 0.47 percent to 28.77 euros by the end of trading.

Bayer said the cuts were related to debt levels, high interest rates and a strained free flow of funds. The group had already informed about the step the day before, shortly before the XETRA close.


Image source: Lukassek /, Arseniy Krasnevsky / Shutterstock

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