Bayer in great position for shopping spree

Weekly Corporate Growth Report, Jun 16, 1997

In March, German chemicals giant Bayer AG announced that it planned to go on a buying spree, saying it had enough cash to finance $8 billion of takeovers. To date, however, it has only bought DuPont Co.'s graphics films and offset printing plates business. Analysts say that the takeover only set Bayer back by $500 million. That still leaves a great deal of money for the company to play with. So the question arises: What does Bayer have planned next?

Surprisingly, the answer could very well be nothing. Bayer officials have excused themselves for not making more major deals by saying that acquisitions cost too much these days. As proof, they have pointed to Roche Holding Ltd.'s $11 billion takeover in May of Boehringer Mannheim, a diagnostics company with less than $3 billion in sales.

Bayer has a strategy that it feels is different from other companies. It wants to buy good companies but at attractive prices. Bayer executives say they must look carefully for big production synergies to justify any transactions.

According to an analyst at Salomon Brothers, Bayer can make purchases of up to $8 billion that are financed entirely by debt When placed beside its German rival Hoechst AG, Bayer has comparatively little debt and could improve its value if it found something to do with its cash. It is likely that the company will make a series of smaller purchases instead of a mega-merger. Its plan is to gain expertise from small, innovative pharmaceutical companies that are not that expensive.

(Source: Wall Street Journal)