New Bayer chairman faces sour investors in his first major roadshow

Frankfurt

BAYER chairman Norbert Winkeljohann has spent the last few weeks meeting almost two dozen fund managers during his first major tour of the investment community since taking the job in April. The feedback hasn't been altogether encouraging.

Several of Bayer's 25 largest shareholders questioned the timing of the three-year contract extension granted to chief executive Werner Baumann in September, given the company continues to grapple with the fallout from the Monsanto acquisition that he spearheaded.

Others want Bayer to consider an outright breakup into pharmaceuticals and crop science at some point, saying there are limited synergies between the businesses, according to people familiar with Mr Winkeljohann's conversations.

The broadside from multiple shareholders highlights their continued unease with Bayer's strategy a good two years after the German company bought Monsanto for about US$63 billion. That takeover has come to be widely viewed as disastrous because, among other things, it saddled Bayer with massive legal bills tied to Monsanto's controversial Roundup weedkiller, prompting open rebellion from shareholders against senior management.

A sweeping settlement that looked within reach just a few months ago remains elusive. Instead, litigation costs continue to rise, weighing on Bayer's stock price and eating into funds it would need to bolster its pharmaceuticals portfolio.

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Bayer's depressed share price - it's the worst performer on Germany's benchmark DAX this year - "reflects a lack of investor confidence in the company's strategy and its resolve to address the pending litigation and depleting pharma pipeline", said Ingo Speich, portfolio manager at Deka Investment, who was among those who met with Mr Winkeljohann.

The company, long coveted for its strong stock price and reliable returns, has faced the wrath of investors unsettled by the Monsanto transaction. The anger burst into the open in early 2019 when shareholders refused to back Mr Baumann at their annual meeting - a ceremonial rebuke that didn't force his departure but was still an unprecedented vote of no-confidence in the typically consensual gatherings.

In his meetings with investors, which Mr Winkeljohann conducted mostly virtually because of the coronavirus pandemic, the chairman laid out his case for keeping Bayer whole. At the same time, in some of his conversations he didn't outright reject a potential shift in strategy or top personnel once the Roundup situation is clearer, said the people, who asked not to be identified discussing confidential conversations.

Bayer said it doesn't comment on non-public conversations between its leadership and investors.

While it's not unusual for chairmen in Germany to meet with investors ahead of, say, a general meeting, the scope of Mr Winkeljohann's roadshow and the discussions about strategy and personnel goes beyond the usual encounters, the people said.

Some investors have expressed a desire to let Mr Baumann at the very least see through the Roundup battle. In June, Bayer said it would pay as much as US$12.1 billion to resolve United States litigation over three Monsanto products. As much as US$10.9 billion of that was earmarked for claims that Roundup causes cancer, an accusation that Bayer has repeatedly denied.

The company said at the time that it had reached accords to resolve about 75 per cent of the roughly 125,000 filed and unfiled lawsuits in the US and that the remainder would probably be taken care of in the near term.

But in November, Bayer said it only had Roundup deals that were final, in the process of being finalised or reached "in principle" for about 88,500 cases, a smaller number than the company had indicated previously. Meanwhile, a US judge complained of the slow progress and said he'll resume federal trials on the matter. That's a development the company has sought to prevent in its attempt to contain the suits.

Still, Mr Baumann should stay on while Bayer negotiates a resolution, said Markus Manns of Union Investment, among Bayer's top institutional investors. But if the company struggles to return to growth thereafter, a change of leadership should take precedent over major structural change, he said.

"I would prefer new management rather than splitting up the company right away," said Mr Manns, who also met with the chairman. BLOOMBERG