(Bloomberg) — Bayer AG plans to slash its dividend by 95% in an effort to pay down debt as the German company looks to recover from multiple crises including a wave of litigation over Roundup herbicide.
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Bayer will present a plan to offer investors 11 euro cents ($0.12) per share for fiscal year 2023, down from €2.40 last year, according to a statement Monday.
The new policy — intended to pay out the “legally required minimum for three years” — is part of Chief Executive Officer Bill Anderson’s broader push to turn around the fortunes of the struggling company.
Anderson has already instituted operational changes designed to speed up decision-making, cutting layers of management and eliminating thousands of jobs. He’s also reviewing the conglomerate strategy, which currently includes three divisions, focused on crop science, pharmaceuticals and consumer health products.
Bayer loaded up on debt with its $63 billion acquisition of crop science company Monsanto Co. in 2018, which brought it Roundup, and has struggled to manage that burden amid heavy legal costs and rising interest rates. The company had €38.7 billion in net financial debt as of Sept. 30, according to a recent filing.
‘Strategic Actions’
The dividend cut will save Bayer about €2.3 billion during each of the next three years, according to Charlie Bentley, an analyst at Jefferies. But with litigation and pension liabilities still high, the company will probably need to resort to other “major strategic actions” to restore the balance sheet, Bentley said.
Bayer has already pledged to spend as much as $16 billion to resolve Roundup litigation from US plaintiffs claiming that the product caused cancer. Bayer insists the weedkiller is safe. Bayer is still facing tens of thousands of claims on the matter, with investors and analysts wondering if it will need to increase its outlay. Beyond that, Bayer is also dealing with expensive litigation over other Monsanto products, including the herbicide dicamba and toxic PCBs.
Bayer is also facing other challenges. Agriculture commodity prices are slumping, curbing sales for the crop science division. The pharma division is contending with patents expiring for its top-selling drugs, the blood-thinner Xarelto and eye medicine Eylea, and may struggle to grow through the rest of the decade.
In November, Anderson said he expected to generate zero free cash flow in 2023 despite nearly €50 billion in revenue, something he called “simply not acceptable.” Later that month, Moody’s Investors Service lowered its outlook to negative from stable for Bayer, citing a series of drug pipeline and legal setbacks that have sent its shares and bonds tumbling.
Bayer shares rose about 1% on Monday but are down more than 70% since the Monsanto transaction.
“One of our top priorities is reducing debt and increasing flexibility,” Anderson said in Monday’s statement. “Our amended dividend policy, which considered investor input and was not taken lightly, will help us do so.”
(Updates with analyst comment, CEO comment, background throughout)
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Source: finance.yahoo.com