Bayer Plans Job Reductions of 12,000

By Akia Thorpe -

November 30, 2018

Bayer has announced staff reductions of approximately 10% of its global workforce, or 12,000 employees, across all of its business by the end of 2021. Approximately half of these cuts are in corporate functions, supporting functions, and business services, one-third in its crop-protection business, and about 10% in its pharmaceutical business. Bayer says its planned efficiency and structural measures are expected to enhance competitiveness and generate annual contributions of EUR 2.6 billion ($2.9 billion) as of 2022, which include expected synergies from its $63-billion acquisition of Monsanto, an agrochemical and seed company, which Bayer completed earlier this year (June 2018). The restructuring also involves plans to divest its animal-health business and sell several consumer health brands.

The restructuring is part of a broader strategy by Bayer to transform itself into a life-sciences company focused on crop protection, pharmaceuticals, and consumer healthcare. Its $63-billion acquisition of Monsanto, the largest in the company’s history, punctuated that strategy.

 “We have made very good progress with Bayer’s strategic development in recent years. As we now proceed with these measures, we are laying the foundation to sustainably enhance Bayer’s performance and profitability,” said Werner Baumann, Chairman of the Board of Management of Bayer AG in a November 29, 2018 company statement. “With these measures, we are positioning Bayer optimally for the future as a life-science company.”

With the Monsanto acquisition, the crop-science business became the largest piece of Bayer by revenue, eclipsing its pharmaceutical business, which accounted for nearly 50% of the company’s sales in 2017. In 2017, Bayer had total sales of EUR 35.015 billion ($41.180 billion) with pharmaceuticals accounting for EUR 16.847 billion, or 48% of sales. Sales of the crop-science business were EUR 9.577 billion ($11.250 billion), and sales of its consumer-healthcare business were EUR 5.862 billion ($6.887 billion). Sales of its animal-health business were EUR 1.571 billion ($1.848 billion). The company also spun out is material-science business into a separate company, Covestro.

Overall, Bayer plans job reductions by the end of 2021 of around 12,000 out of its total global workforce of 118,200 jobs, with a significant number of reductions in Germany. The planned reductions are allocated as follows: in its pharmaceuticals business, approximately 900 jobs in research and development (R&D) and around 350 positions in connection with the company’s manufacturing facility in Wuppertal, Germany, which makes recombinant factor VIII products for treating hemophilia; roughly 1,100 jobs associated with a reorganization of its consumer health business; around 4,100 positions in its crop-science business as the result of integrating the acquired agriculture business of Monsanto; and a further 5,500 to 6,000 jobs in corporate functions, supporting functions, business services, and country platforms. The company said that details of the job reductions will be worked out in the months ahead. The total one-time costs related to these measures are expected at a factor of 1.7 times the annual contributions.

Bayer says its planned efficiency and structural measures are expected to enhance competitiveness and generate annual contributions of EUR 2.6 billion ($2.9 billion) as of 2022, including the expected synergies from its $63-billion acquisition of Monsanto. As part of its restructuring, the company plans to sell the consumer health brands, Coppertone and Dr. Scholl’s. Bayer also is in discussions regarding the divestment of its 60% interest in the German site-services provider, Currenta. The company said that following the carve-out of its material-science business into a separate company, Covestro, Bayer’s use of Currenta’s services no longer justifies this 60% stake.

The company says it intends to exit the animal-health business and is assessing available options. “Although this unit offers growth options in an attractive market, Bayer intends to allocate the investment resources necessary to support Animal Health to Bayer’s core businesses of Pharmaceuticals, Consumer Health and Crop Science” said the company in its statement.

A portion of Bayer’s freed-up funds from the restructuring are set to be used to strengthen innovation and competitiveness in its divisions. “Through the end of 2022 alone, we aim to invest a total of around 35 billion euros ($39 billion) in our company’s future, with research and development (R&D) accounting for over two thirds of this figure and capital expenditures for just under one third,” Baumann said in the company statement.

Division-specific measures

In its Pharmaceuticals Division, Bayer says strengthening the focus on external innovation is an essential step, along with the continual development of the R&D pipeline. Measures include accelerated development of the innovation model and a restructuring of internal R&D activities. Resources freed up through the reduction of internal capacities are to be directed toward strengthening investment in collaborative research models and external innovations.

Within the hemophilia business, Bayer says the introduction of a number of new products has led to an increase in competition. To remain competitive, Bayer has decided not to use the factor VIII facility it had built in Wuppertal, Germany and to focus all recombinant factor VIII production in Berkeley, California.

In its Consumer Health Division, the company says measures will be initiated to catch up to market growth in the coming years and improve profitability. In addition to a previously announced divestment of prescription dermatology products, Bayer said it will review its strategic options in the coming months with a view to exiting the sun care (Coppertone) and foot care (Dr. Scholl’s) product lines.

Beyond the planned portfolio measures, the organizational structure will be adapted with intent to succeed in a changing market environment.

At the Consumer Health and Pharmaceuticals Divisions, non-cash impairments and write-offs totaling approximately EUR 3.3 billion ($3.7 billion) are anticipated in the fourth quarter of 2018. In the Consumer Health Division, these primarily concern brands acquired with the company’s previous $14.2-billion acquisition of the consumer healthcare business of Merck & Co., which Bayer acquired in 2014, and its EUR 460 million ($524 million) acquisition of Dihon Pharmaceutical, a producer of  over-the-counter dermatology products and herbal traditional Chinese medicine products in 2014, as well as some of the goodwill recognized in the balance sheet (totaling some EUR 2.7 billion ($3 billion). In the case of its Pharmaceuticals Division, impairments and write-offs of around EUR 0.6 billion ($683 million) are due regarding the recombinant factor VIII manufacturing facility in Wuppertal.

At the Crop Science Division, Bayer says the focus is on successfully integrating the acquired business from Monsanto. Bayer expects synergies to deliver annual contributions of EUR 1.04 billion ($1.2 billion) to earnings before taxes, depreciation, and amortization before special items as of 2022.

Source: Bayer