Bayer AG separates its material science business, Covestro, through a spin-off in 2016 to focus on life sciences. Bayer's material science division produced polymers and had declining revenues, no longer fitting Bayer's strategy. The spin-off transforms Bayer into a pure life sciences company pursuing growth in pharmaceuticals and agriculture through acquisitions, research and development, and expanding in emerging markets.

1. Bayer Separates Material Science Business- Covestro
WSJ Article by Alessi, C. (2015, Sep 01)
Presented by: Yinka Daramola
A brief analysis of corporate strategy

2. • Company Background
• Some Relevant Information
• Strategic Outlook
• Why the approach?
• Concrete Action Steps
• Relevance to Coursework
Outline

3. • 152 year old German multinational chemical and pharmaceutical company
• Diversified organization with core competencies in healthcare, agriculture, and
high-tech polymer materials.
• Bayer’s mission is to improve the quality of life of people with internally
developed and commercialized innovative science-based products
• The firm’s core values are personified in its ‘LIFE’ acronym: Leadership, Integrity,
Flexibility, and Efficiency- principles drive all personnel in daily activities
• Core businesses are classified into Life Sciences and Material Sciences
About Bayer AG

4. Healthcare
Material
Sciences
Crop
Science
Company Structure

5. • Life Science businesses include Healthcare (Pharmaceuticals & Consumer
Health) and Crop Science
• In Healthcare, Pharmaceuticals comprise patented drug sales and
Consumer Health segments comprise Consumer Care, Medical Care, and
Animal Health
• Crop Science businesses include Crop Protection/Seeds and
Environmental Science
• Material Sciences businesses include the production and sales of
Polycarbonates; Polyurethanes; and Coatings, Adhesives, Specialties
Company Structure

6. Healthcare
Consumer HealthPharmaceuticals
Company Structure
Consumer
Care
Medical
Care
Animal
Health

7. • 2014 consolidated earnings of $47.35 billion
• Net Income of $3.84 billion
• Bayer exceeded all strategic earnings forecast goals in the 2014 year
• Half Year 2015 earnings grew 16.47% and net income 3.65%
• 118,888 employees globally
+ 7.47%
+ 5.2%
Some Relevant Information

8. 49%
23%
28%
Business Segment Earnings- Bayer AG 2014
HealthCare
CropScience
MaterialScience

9. • Bayer AG spends about 8.5% of sales on R & D to retain and
improve competitive standing and product relevance
• 37.7% of Global Sales were earned from emerging markets
• Emerging Markets refers to Asia (excluding Japan), Latin
America, Eastern Europe, Africa and the Middle East
11.3%
Other Noteworthy Items

10. Pharmaceuticals
60%
Consumer Health
40%
HEALTHCARE BUSINESS REVENUES- BAYER AG 2014
11.2%
2.1%

11. Crop
Protection/Environmental
Science
93%
Environmental Science
7%
CROPSCIENCE BUSINESS REVENUES- BAYER AG 2014
11.6%
6.9%

12. • Exit Material Science and transform Bayer into a pure Life
Science company
• Execute a strategy of organic growth by streamlining portfolio
• Generate strong growth with new product innovations through
R&D progress
• Pursue steady financial growth in core indices
Strategic outlook

13. • Relatively high cash investments in Material Science are not
yielding commensurate returns
• No longer a strategic fit
• Industry is experiencing falling revenues and earnings: Merck &
Co-, Pfizer-, Novartis+
• Emerging markets growth requires adjusting company focus
Why this approach?

14. Concrete Action Steps
• Spin-off Material Science business (Covestro) via 2016 P.O.
• Acquisitions to streamline portfolio and grow core
businesses*
 Acquired Merck & Co US Consumer Care business, Dihon
Pharmaceutical Group Co. Ltd., China, Algeta asa, Norway
 Accelerating development of cancer drug Xofigo, adding
Chinese medicine to product offering

15. • These deliberate strategic actions explain why Bayer is still
in business
• Strategic decisions continue to reflect Bayer’s mission,
although adjusting to improve efficiency
• Strategic plan maps out Bayer’s approach to coping with
industry conditions and outcompeting rivals
Relevance?

16. Alessi, C. (2015, Sep 01). Bayer separates material science business covestro;
german pharmaceuticals group moves closer to floating its $12 billion unit,
potentially this fall. Wall Street Journal (Online) Retrieved from
http://ezproxy.nu.edu/login?url=http://search.proquest.com/docview/1708
583814?accountid=25320
Bayer AG (2014). Annual report 2014 augmented version. Retrieved from
http://www.annualreport2014.bayer.com/
Bayer AG (2015). Interim report second quarter 2015. Retrieved from
http://www.quarterly-report-2015-q2.bayer.com/en/income-
statements.aspx
Bayer AG (2015). Key data by segment. Retrieved from http://www.quarterly-
report-2015-q2.bayer.com/en/key-data-by-segment.aspx
References

17. Bayer AG (2015). Hello Covestro! Bayer material science now legally and
economically independent under the new name covestro. Retrieved 02
Sept from http://www.bayer.com/en/covestro.aspx
Merck & Co., Inc. (2015). 2014 Annual Report on form 10-k. Retrieved from
http://www.merck.com/investors/financial-reports/home.html
Yahoo Finance (2005). Pfizer Inc.- Income Statement. Retrieved from
http://finance.yahoo.com/q/is?s=PFE+Income+Statement&annual
Yahoo Finance (2005). Merck & Co. Inc.- Income Statement. Retrieved from
http://finance.yahoo.com/q/is?s=MRK+Income+Statement&annual
Yahoo Finance (2005). Novartis AG- Income Statement. Retrieved from
http://finance.yahoo.com/q/is?s=NVS+Income+Statement&annual
References