Bayer Faces Investor Pressure to Accelerate Turnaround Amid Record Lows

Bayer is under growing pressure from investors to expedite its turnaround strategy as CEO Bill Anderson grapples with slumping earnings and a 20-year low in the company’s share price following a stark profit warning earlier this week. Some shareholders have called for a stronger focus on efficiency and drug development to regain market confidence and revive the German conglomerate’s fortunes.

The company announced that weak demand from farmers would likely lead to lower earnings in 2024, a statement that triggered a 14.5% drop in its shares. This steep decline continues a pattern of underperformance that dates back to Bayer’s $63 billion acquisition of Monsanto in 2018, a deal that has brought significant financial strain and legal challenges.

Anderson has already begun implementing cost-cutting measures, including reducing managerial positions, streamlining decision-making processes, and cutting through bureaucratic hurdles. However, plans to break up Bayer’s diversified business units have been shelved for the time being.

Despite these efforts, Deka Investment, one of Bayer’s top 20 shareholders, expressed dissatisfaction with the pace of change. Ingo Speich, Deka’s head of sustainability and corporate governance, stated that the restructuring must yield tangible results in either revenues or costs, warning that shareholder patience with management is running thin.

While some of Bayer’s challenges stem from broader industry issues—such as declining farmer incomes that have also impacted rivals BASF and Corteva—others are unique to the company. A delay in U.S. regulatory approval for a new generation of soybean seeds has further compounded its struggles and is expected to affect earnings in 2025.

Markus Manns, a portfolio manager at Union Investment, echoed the call for more decisive action. He acknowledged that Anderson’s cost-cutting measures were a step in the right direction but emphasized the need to strengthen Bayer’s pharmaceutical pipeline and establish a clearer path to long-term growth. Manns also criticized management for failing to clarify when the earnings decline might stabilize.

Bayer’s warning of further earnings declines in 2024 stands in sharp contrast to previous analyst estimates, which had projected a 3% increase in adjusted earnings by 2025.

The Monsanto acquisition, once envisioned as a strategic move to capitalize on the growing agricultural sector, has proven to be a major liability. In addition to its debt burden, Bayer continues to face costly lawsuits over allegations that Monsanto’s Roundup weedkiller causes cancer.

Anderson has pledged to reduce legal uncertainties while improving Bayer’s operational performance. He cited successful launches of new drugs, such as Nubeqa for prostate cancer and Kerendia for kidney disease, as reasons for optimism. However, the decline of its blockbuster blood thinner Xarelto, due to patent expiration, remains a significant challenge.

Despite Bayer’s low valuation—its shares trade at just 3.9 times forward earnings compared to BASF’s 11.5 and Corteva’s 18.7—analysts remain cautious. BMO Capital Markets noted that while the stock might appear attractively priced, they could not recommend it as a buy until the company demonstrates concrete improvements.

For Anderson, the road ahead remains fraught with obstacles as he seeks to balance immediate restructuring efforts with the pursuit of a long-term “bright future” for Bayer.

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