The Bayer Group remained on a path of growth in the third quarter of 2016 and took a major strategic step forward with the agreed acquisition of Monsanto. “The announcement that we had reached agreement to acquire Monsanto is a major strategic milestone for Bayer. We will be creating a global leader in agriculture and, at the same time, reinforcing our leadership position as a Life Science company,” said Bayer Management Board Chairman Werner Baumann when he presented the interim report for the third quarter on Wednesday.
The third quarter was very successful in operational terms as well, reported Baumann. In the Life Science businesses, Bayer achieved encouraging sales and earnings growth overall. Pharmaceuticals especially registered a very positive business performance once again. The recently launched products showed continued strong development. Consumer Health increased sales on a currency- and portfolio-adjusted basis (Fx & portfolio adj.) but EBITDA before special items was below the prior-year level. The operating performance of Crop Science held steady year on year in a persistently difficult business environment. Animal Health raised sales and earnings. Covestro registered slight growth in sales (Fx & portfolio adj.) and a substantial increase in EBITDA before special items. The outlook for the full year remains positive. Bayer is raising the forecast for core earnings per share.
Crop Science successful in a persistently difficult market environment
Sales of the agricultural business (Crop Science) came in at EUR 2,057 million (Q3 2015: EUR 2,081 million). This amounted to a decline of 1.2 percent on a reported basis. Adjusted for currency and portfolio effects, sales were level year on year. “Crop Science was successful in a persistently difficult market environment,” said Baumann. Business at Crop Protection/Seeds was steady overall at the prior-year level despite an ongoing weak business environment, particularly in Latin America. Crop Science sales developed encouragingly in Europe (Fx adj. plus 5.8 percent) and North America (Fx adj. plus 5.7 percent). Sales edged forward year on year (Fx adj. plus 1.1 percent) in the Asia/Pacific region but declined (Fx adj. minus 5.3 percent) in the Latin America/Africa/Middle East region.
At Crop Protection, Fungicides posted an increase of 8.1 percent (Fx. & portfolio adj.), whereas Insecticides saw a considerable decrease (Fx & portfolio adj. minus 16.8 percent). Performance at Herbicides (Fx & portfolio adj. minus 1.0 percent) and Seed-Growth (Fx & portfolio adj. minus 3.7 percent) declined year on year. Development at Seeds was very encouraging, with sales expanding by 21.6 percent (Fx & portfolio adj.). Environmental Science also expanded sales by a robust 17.7 percent (Fx & portfolio adj.).
EBITDA before special items of Crop Science increased by 0.6 percent to EUR 318 million (Q3 2015: EUR 316 million). Higher selling prices and a positive currency effect of around EUR 80 million stood against lower volumes, higher write-downs on receivables and higher research and development expenses, among other things.
“Bayer and Monsanto are a perfect fit”
Bayer reached a major milestone on September 14, 2016, with the signing of a binding agreement to acquire Monsanto for USD 128 per share, representing a transaction value of around USD 66 billion. “This step is entirely logical,” said Baumann. “The two companies are a perfect fit and complement each other ideally. We will combine our strengths in seeking solutions to one of the major societal challenges: how to feed a substantially growing global population in an ecologically sustainable way.” Bayer’s portfolio will be tailored to the needs of customers throughout the world – from large-scale commercial operations in the United States to smallholder farmers in India. The transaction is subject to customary closing conditions, including approval of the merger agreement by a majority of Monsanto’s stockholders and receipt of required approvals from the relevant antitrust and other authorities. Bayer has initiated the process of obtaining these approvals. It intends to submit the necessary application in the United States before the end of this year and in the European Union probably in the first quarter of 2017. In terms of financing, Bayer successfully closed syndication of the USD 57 billion bank facilities at the beginning of October. Refinancing in the capital markets will depend on respective market conditions and might be executed in part well in advance of closing of the transaction, which Bayer expects by the end of 2017.
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