Breakingviews – Bayer crop spinoff would be tricky but bountiful

LONDON, July 10 (Reuters Breakingviews) – Bayer’s (BAYGn.DE) new CEO may be considering some valuable crop rotation. The 49 billion euro seed-to-drug maker’s shares rallied 3% on Monday after a Friday report by German news service Platow Brief said the company may spin off its troubled crop science division. For new boss Bill Anderson, the numbers certainly work. Bayer’s component parts, valued separately on peer multiples, would have a total equity value of 96 billion euros, Breakingviews calculated in February, or almost double the group’s current market capitalisation. Admittedly crop-science rival Corteva (CTVA.N) has dropped since then, but not enough to change the overall logic.

There are a few challenges with a breakup. The crop science division was born of Bayer’s disastrous takeover of Monsanto in 2018, and the German conglomerate is still grappling with lawsuits alleging that its weedkiller caused cancer. But there is a handy workaround. If it offloads the crop science division, Bayer could indemnify the new owners against the cost of future litigation up to a certain point. Anderson also needs to consider how he will fund future drug discoveries at the pharmaceutical business, which would remain after a spinoff. Currently, the crop science division throws off a lot of the combined company’s cash. But that’s no reason to hold off, given the amount of value that could be created for shareholders. (By Aimee Donnellan)

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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