By Christopher Alessi
LEVERKUSEN, Germany--The company that invented aspirin is
reinventing itself--again.
Bayer AG has long been a household name to Americans who
associate its iconic cross logo with the painkiller. Few know the
150-year-old German pharmaceuticals giant's product line also
includes brands from Flintstones chewable vitamins to blood thinner
Xarelto.
Marijn Dekkers, Bayer's Dutch-born, U.S.-trained chief
executive, is out to change that.
Since he took the helm in 2010, Mr. Dekkers has rocked Bayer's
staid culture by demanding that division heads have marketing
backgrounds rather than science pedigrees. He presided over the
launch of five new blockbuster drugs and has beefed up the group's
over-the-counter drug business with the $14.2 billion acquisition
of U.S.-based Merck & Co.'s consumer-care division.
Now he is preparing to spin off Bayer's $10 billion
specialty-plastics business, part of a larger effort to refocus the
company on its health-care and agriculture businesses.
Mr. Dekkers, who is 57 years old and spent 25 years of his
career in the U.S., says he is trying to transplant the best of
American corporate culture to his overly planned German company.
His priorities have been speed, adaptability and more
risk-taking.
U.S. companies often operate on an "80-20 rule," he said in a
recent interview, meaning they begin to execute ideas with only 80%
of necessary data in hand. "Here, if I would be kind, in the
beginning, we had a 99-1 rule. And I'm kind."
Mr. Dekkers suggested Bayer's aversion to risk was rooted in
Germans' fear of failing. More broadly, that sensibility explains
the lack of a "venture-capital mentality," which is hurting the
country's global competitiveness, he said.
An avid tennis player, Mr. Dekkers said that while living in
Boston, half the friends he played against were venture
capitalists. After five years in Germany, he added, "I have yet to
meet the first tennis partner who's a venture capitalist."
Instead, his tennis partners tend to be lawyers, tax consultants
and financial types--"a lot of consultants," he said, underscoring
the apparent dearth of venture capitalists in the German business
world.
Bayer's makeover under Mr. Dekkers is the latest for a company
founded to produce synthetic dyes, and which in the 1920s and 1930s
was a major player in the I.G. Farben chemicals cartel--a supplier
of Zyklon B and other deadly chemicals for the Nazi war machine.
Today it is the largest company by market value--with a market
capitalization of EUR118 billion ($128 billion) --in Germany's
DAX-30 blue chip index and should retain that title after the
plastics divestment. Bayer employs 118,000 workers world-wide and
took in EUR42.2 billion in revenue in 2014.
The plastics division, called Material Science, could be spun
off directly to shareholders but Mr. Dekkers suggested an initial
public offering could be preferable because it would generate cash.
He said Bayer's EUR20 billion in debt "is not an impossible number"
but limits financial "flexibility." Cutting debt "would always be
good," he said.
Plans to divest Material Science started about a year ago. As
executives discussed company strategy, it was clear the business
would require big capital investments to stay competitive. "I said,
'We can just not do this anymore,'" Mr. Dekkers recalled, noting
that investing in the health-care or crop-science businesses yields
far greater returns.
Crop Science posted earnings before interest and taxes of
EUR1.81 billion last year, while Health Care reported an EBIT of
EUR3.58 billion for last year, boosted by sales of the five new
prescription drugs. That series includes Xarelto, which operates
under a partnership with Johnson & Johnson in the U.S.; eye
treatment Eylea; cancer drugs Stivarga and Xofigo; and pulmonary
hypertension drug Adempas, which contributed combined sales of
EUR2.9 billion last year and are projected to reach near EUR4
billion in 2015.
Material Science--which manufactures polycarbonate, polyurethane
and other polymers used in products ranging from laptops to soccer
balls--contributed EBIT of only EUR555 million, down from EUR1.04
billion in 2007.
Still, some analysts are skeptical that Bayer's drug pipeline is
strong enough to deliver many new products with selling power like
the current wave. But Bayer expects at least three new drugs in
midstage clinical testing, including two for chronic heart failure,
to advance this year. "Strong data is expected" for those trials,
said Ali Al-Bazergan, an analyst at Datamonitor Healthcare in
London.
Mr. Al-Bazergan said Bayer's pharmaceutical division is poised
to benefit from new synergies as the group becomes a more
integrated life-sciences company.
Investors have largely welcomed Mr. Dekkers efforts to
streamline Bayer. Its share price hit an all-time high of EUR145.85
in mid-March, up roughly 60% from a year earlier.
"Dekkers is definitely listening to shareholders," said Odile
Rundquist, an analyst with Helvea SA of the Baader Bank Group, who
credits investors with prompting Bayer's tighter focus.
"Material Science really didn't fit in a life-sciences company,"
said Markus Manns, a portfolio manager at Bayer shareholder Union
Investment Privatfonds GmbH.
That strategy fits a growing trend in the drug industry, said
Ms. Rundquist, noting that Switzerland's Novartis AG and the UK's
GlaxoSmithKline PLC have both recently taken similar paths.
Mr. Dekkers said he faced initial resistance to the separation
from employee representatives on the supervisory board who were
concerned about maintaining the division's 17,000 jobs. He
ultimately won approval from all 10 representatives by guaranteeing
current employment levels for a number of years, he said.
The planned divestment comes on the heels of the Merck
acquisition, which allows Bayer to expand its nonprescription
offerings and stamp the Bayer cross on products ranging from
Claritin allergy medicine to Coppertone sunscreen.
Mr. Dekkers's bet in the Merck deal is that Bayer's global
consumer sales network offers a pipeline for its new American
products to other countries, while shoring up the Bayer brand in
the U.S.
The brand name is important to Mr. Dekkers, who recalls that
when he joined Bayer he thought its OTC offering "was just
aspirin." American consumers, he said, "used to see 'Bayer' only on
aspirin--the ugly yellow bottle."
Mr. Dekkers left the Netherlands for the U.S. in 1985, with no
plans to return. His American career included stints at General
Electric Co., where he currently sits on the board, Honeywell
International Inc. and, most recently, at Thermo Fischer Scientific
Inc., where he was chief executive.
When he moved to Germany five years ago with a U.S. passport and
an American wife and children--who spoke neither Dutch nor
German--some Bayer staff worried he was "just an American," or
"somebody who was just interested in shareholder value," he
said.
One former Bayer employee, who was with the company from 2006
through 2014, said some staff had feared the company's small-town,
traditional values would be undermined by a foreigner. "Leverkusen
was Bayer town," the person said, noting that Bayer used to run a
local swimming pool--which it stopped doing well before Mr. Dekkers
came aboard--and still sponsors a local equestrian club. Bayer
sponsors 26 clubs in total, including the professional Bayer 04
Leverkusen team.
The person said initial employees fears have largely dissipated,
while Mr. Dekkers has struck a balance between addressing
shareholder concerns and respecting company tradition.
For Mr. Dekkers, who is set to step down at the end of 2016 and
will likely return to the U.S., the goal of his tenure has been to
find the right balance between the American and German business
approaches. "Making it more 90-10 than 80-20 or 99-1 is very
important," he said.
Write to Christopher Alessi at christopher.alessi@wsj.com
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