Bayer’s Dekkers Looks for Stars to Align on Merger of Equals

Bayer AG (BAYN), the German maker of aspirin, is open to a “merger of equals” that would strengthen its health-care unit without paying a premium for a large acquisition, Chief Executive Officer Marijn Dekkers said.

Three or four companies may be considered Bayer’s equals in a merger of drug units, Dekkers said in an interview at Bloomberg’s headquarters in New York. He declined to elaborate.

Doubling the size of Bayer’s health unit, which had 16.9 billion euros ($25.1 billion) in sales last year, would create a drugmaker on par with Sanofi-Aventis SA (SAN), GlaxoSmithKline Plc (GSK) and AstraZeneca Plc. (AZN) Bayer, based in Leverkusen, Germany, is relying on its two chemical units to drive growth this year, forecasting that revenue gains at the drug division won’t match the market. Being bigger isn’t essential, though it may be advantageous, said Dekkers, who took over as CEO in October.

Bayer would consider such a merger “if the stars were to be aligned,” Dekkers, 53, said during yesterday’s interview. “I would be open to making the company stronger if the right opportunity were to come.”

Drugmakers with about the same annual revenue as Bayer’s health unit include Indianapolis-based Eli Lilly & Co. (LLY) and New York-based Bristol-Myers Squibb Co. (BMY) Thousand Oaks, California- based Amgen Inc. (AMGN), the world’s biggest biotechnology company, had sales of $15.1 billion last year.

Blood Thinner

Growth in the health-care unit may depend on broader approval for blood thinner Xarelto, Dekkers said. Bayer is waiting for approval of the medicine for irregular heartbeat patients who face the risk of a stroke.

“Whether and to what extent potential ‘equals’ may be interested in taking up this offer to talk probably depends on the approvability of Xarelto,” Cornelia Thomas, a London-based analyst for WestLB, wrote in a note to investors today, referring to Bayer’s new blood thinner. “This would change Bayer’s valuation significantly.”

Preliminary talks, at most, may be expected on a tie-up before the regulatory decision in the second half, wrote Thomas. She rates Bayer’s shares “neutral.” The company estimates annual sales of the drug, which it markets with Johnson & Johnson (JNJ), may peak at more than 2 billion euros.

Combining two equal assets or seeking smaller biotechnology companies is more logical than large purchases at the premiums paid in drug industry deals like Pfizer Inc. (PFE)’s $68 billion acquisition of Wyeth in 2009, Dekkers said.

Acquisition Multiples

Bayer fell 1.16 euros, or 2 percent, to 57.39 euros at 4:35 p.m. in Frankfurt. The stock has returned 29 percent in the past year compared with 23 percent for Germany’s benchmark DAX Index.

Companies have paid a median 13.3 times earnings before interest, tax, depreciation and amortization for pharmaceutical acquisitions in the past five years, according to 151 transactions tracked by Bloomberg data. Pfizer’s purchase of Wyeth was the largest industry deal during that time.

“We’re in a position where we don’t have to do anything,” Dekkers said. “We have a relatively good pipeline compared with the rest of the industry, and we don’t have blockbusters coming off patent either.”

Bayer’s top-selling multiple sclerosis treatment betaseron faces competition from a Novartis AG (NOVN) version of the same drug called Extavia, and from the Swiss drugmaker’s new MS pill Gilenya. Sales fell 5 percent in the first quarter. Meanwhile, sales of Bayer’s birth-control pill Yaz dropped 18 percent after Teva Pharmaceutical Industries Ltd. (TEVA) introduced a generic copy.

148-Year History

Analysts have suggested the appointment of Dekkers, the first outsider chosen to lead Bayer, might herald a breakup of the 148-year-old company. Dekkers has rejected the idea repeatedly.

Even as Bayer expects revenue from 2013 to be driven by innovative new medicines such as Xarelto and the experimental eye treatment VEGF-Trap Eye partnered with Regeneron Pharmaceuticals Inc., Dekkers said the company is seeking to boost sales of older medicines by selling them in emerging markets such as China.

Bayer aims to hire 2,000 salespeople in China this year, he said.

Dekkers has said selling the MaterialScience plastics unit to buy a drugs asset would be an “extreme option.” He repeated that statement yesterday, adding that Bayer doesn’t have a pharmaceutical acquisition opportunity in front of it at the moment that would warrant such a sale.

In a merger of equals, Dekkers said, it wouldn’t be necessary to sell a unit.

MaterialScience makes plastics and foams for the automotive industry, while Bayer’s CropScience division makes pesticides and seeds. The two chemical divisions contributed about half of Bayer’s 35 billion euros in sales last year.

To contact the reporter on this story: Naomi Kresge in New York at nkresge@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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