FT : Bayer chief picks contentious path for growth with Monsanto

Bayer chief picks contentious path for growth with Monsanto bid

Share price fall highlights scale of Werner Baumann’s gamble

Less than one month into his tenure as chief executive of Bayer, Werner Baumann has made a move that could end up defining his career.

The aspirin-to-weed-killer conglomerate this week confirmed it had approached the US group Monsanto about a potential takeover that analysts say could be worth more than $50bn. If consummated, that would make it the biggest foreign acquisition by a German company, outstripping the $38.6bn paid when Daimler-Benz acquired Chrysler in 1998.

Mr Baumann, a 53-year-old trained economist who has been with Bayer for almost three decades, appears to have concluded that, after recent deals between rivals Dow Chemical and DuPont and Syngenta and ChemChina, the German group must join the consolidation game or risk being left behind.
However, the 8 per cent fall in Bayer’s shares after its approach was made public highlights the scale of his gamble. Investors fear that buying Monsanto would strain finances and divert attention and resources from the pharmaceuticals business, which is also in need of investment.

“We have struggled to find investors who favour this transaction,” says Alistair Campbell, analyst at Berenberg. “We think a bid for Monsanto will be expensive, [earnings] dilutive and destroy value.”

Mr Baumann’s decision to set out on such a contentious path within weeks of taking over may have surprised those who expected a return to a more conservative and consensual German management style after six years of upheaval under his Dutch predecessor, Marijn Dekkers.

Yet, Mr Baumann was a close ally of Mr Dekkers in the streamlining of Bayer into a more focused life sciences group, based on the twin pillars of healthcare and agricultural seeds and chemicals. He was instrumental, first as chief financial officer and later as head of strategy, in the $14.2bn acquisition of consumer health assets from Merck of the US in 2014 and the spin-off of Bayer’s Covestro plastics unit last year.

Mr Baumann grew up in the small town of Krefeld, western Germany, where Covestro has a large plant beside the river Rhine. An allergy to flour dust deterred him from his family’s bakery business. Instead, he became the first of his family to go to university, studying economics, first in Aachen, then Cologne. He joined Bayer in 1988 and has never left.

Mr Baumann initially thought that by taking a job at Bayer, rather than joining one of the auditing firms that tried to woo him, he would be able to finish a doctorate he was working on in his spare time. But as he steadily rose up the company’s ranks, the thesis was quietly shelved.
A details-oriented workaholic, with distinctive short hair and round wire-framed glasses, he began in the finance department of Bayer’s Leverkusen headquarters. He was spotted by Werner Wenning, a rising star who himself led Bayer for eight years and is now chairman of its supervisory board.

Mr Baumann worked as Mr Wenning’s assistant when he was head of Bayer’s Spanish business. He was later sent to Bayer’s US diagnostics business, and then helped to rebuild the pharma division after a safety scandal led to the withdrawal of its Lipobay anti-cholesterol treatment.

After his stints abroad, he, his wife and four children returned to live in Krefeld. In his garage is the Vespa Rally he used to deliver medicines on as a part-time job while at school — a coincidental harbinger of his future career. The scooter stands, polished and restored, alongside a vintage Golf GTI and an expensive bicycle.

Mr Baumann joked in a recent interview that his new job left little time for cycling. “I might as well put [the bike] on eBay,” he said.

The pressure is unlikely to ease up as he battles to keep his Monsanto pursuit on the road.

FT : US companies’ cash pile hits $1.7tn

US companies’ cash pile hits $1.7tn

©Companies; Getty Images
Five tech groups with $504bn in cash between them, nearly a third of the $1.7tn on balance sheets of US non-financials
US companies are increasingly hoarding cash — with just five groups holding more than half a trillion dollars — as multinationals trim capital spending and issue debt in the face of a lacklustre global economic recovery.
Apple, Microsoft, Alphabet, Cisco and Oracle had amassed $504bn of cash by the end of 2015, nearly a third of the total $1.7tn held on the balance sheets of US non-financial companies, according to a new report from rating agency Moody’s. The top 50 holders accounted for $1.1tn of that amount.
The figures underscore how cash has become concentrated at a handful of companies, many of which have left earnings outside of the US to avoid the hit from repatriating profits under the country’s complex tax code.
Analysts with the rating agency said that overseas cash, worth $1.2tn last year, would probably remain there as the US election looms. Companies are instead expected to deepen their reliance on debt, issuing bonds to finance shareholder returns and mergers and acquisitions.
“At this stage in the political cycle and given strong differences on both sides of the aisle in Washington, we do not expect tax law reform that would prompt overseas cash repatriation,” said Moody’s Richard Lane of Moody’s.
Apple accounted for more than a tenth of the total cash reserves, holding $216bn, 93 per cent of which is overseas. The top-five list included the addition of Oracle, which ousted Pfizer after the pharmaceuticals group completed its $17bn takeover of Hospira.
Capital spending such as new equipment, one of the largest annual expenses, slipped 3 per cent to $885bn — the first decline since the US emerged from recession — as energy and mining groups retrenched in the face of sharply lower commodity prices.
But the rising cash piles mask a rapid increase in debt. For the first time since 2012, cash, short-term investments and liquid long-term investments slipped below debt maturities due over the next five years, Moody’s found.
Total debts rose by nearly $850bn last year to $6.6tn, a separate report from rating agency Standard & Poor’s showed, which put overall cash levels in the US at a slightly higher $1.8tn. While cash had increased by about $600bn over the past five years, obligations surged by $2.8tn.
The increased leverage has been concentrated in smaller and lower quality groups that took advantage of record-low borrowing costs spurred by stimulative monetary policy.
While the top 25 cash hoarders hold cash in excess of their obligations, the cash-to-debt ratio fell to 12 per cent for low-rated junk companies. In 2010, that figure stood above 20 per cent.
“Companies aren’t exactly flush with cash,” S&P analyst Andrew Chung added. “As the credit cycle ages, rates rise and macroeconomic growth slows, that’s when companies in the bottom 99 per cent who levered up [could have] funding issues.”
The increased leverage has not deterred investors from hoovering up large US debt sales, which topped $400bn earlier this week as bankers completed billion-dollar plus transactions for Dell, CVS Health, Southern Co and Boeing.
Investors have pointed to the drop in sovereign debt yields as they buy up corporate bonds, with nearly $10tn of debt trading with a negative yield.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: ORIG +36.5%, AMAT +7.6%, KEYS +5.4%, MENT +2.9%, GPS +1.3%, EGHT +0.9%, WBAI +0.8%

M&A news: IOC +28% (Oil Search (OISHF) proposes to acquire 100% of InterOil for ~$2.2 bln)

Select Chinese ADRs showing strength: RENN +7.7%, JRJC +3.7%, SOHU +2.4%, KANG +2.1%

Select metals/mining stocks trading higher: SBGL +4.3%, FCX +1.6%, RIO +1.4%, ABX +0.9%, BHP +0.8%

Select oil/gas related names showing strength: KMI +2.8%, SDRL +2.5%, CHK +1.6%, PBR +1.6%, RIG +0.9%

Other news: XGTI +13.4% (Intracoastal Capital discloses 9.0% passive stake), PRGN +10% (continued volatility in pre-mkt trade), SRPT +6.8% (DMD drug eteplirsen PDUFA date is May 26), AVXL +6% (granted orphan designation by the FDA for dimethylamine hydrochloride for the treatment of Rett Syndrome), XON +2.5% (US Senate officially passed Zika response and preparedness bill), TM +1.4% (announced that the cumulative figures for global sales of its hybrid vehicles reached 9.014 million units as of April 30), JCP +1.3% (still checking), TSLA +0.7% (prices 10.7 mln shares at $215/share)

Analyst comments: CS +2.5% (upgraded to Neutral from Underperform at BofA/Merrill), DKS +1.8% (upgraded to Buy from Neutral at Goldman; upgraded to Equal-Weight from Underweight at Morgan Stanley)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: NWY -16.3%, VII -12.7%, QSII -9.8%, ROST -6.4%, CLLS -3.6%, CPB -3.1%, DRYS -2.7%, FL -2.6%, BRCD -2.4%, DE -1.8%

M&A news: YHOO -5.2% (suitors are expected to make bids between $2-3 bln for YHOO unit, which was below prior expectations, according to WSJ)


Other news: AXAS -18.8% (commences 25 mln underwritten public offering of common stock), ZIOP -4.2% (following cautious comments from biotech blogger Adam Feuerstein), RDCM -3.6% (prices offering of 1,818,182 ordinary shares at $11.00 per share), BETR -3.1% (prices 10 mln shares of common stock at $11.25 per share), SSS -2.2% (prices 6 mln shares of common stock at $100.00 per share), VRX -0.8% (confirms it has received a notice of default - does not accelerate any of Valeant's indebtedness)

Analyst comments: CMCM -3.7% (downgraded to Underperform from Neutral at Credit Suisse), JNJ -0.7% ( initiated with a Sell at Standpoint Research; tgt $94)

>>> Chip demand from Apple disappointing, say sources

Chip demand from Apple disappointing, say sources
Cage Chao, Taipei; Jessie Shen, DIGITIMES [Friday 20 May 2016]
Chip orders from Apple have been relatively slow in the second quarter of 2016 compared to the same quarter in previous years, due to poor sales of the vendor's existing iPhone and iPad devices, according to industry sources.

In addition, there is still no sign of a substantial rise in chip orders from Apple for the third quarter, despite the expected arrival of the new iPhone slated for launch in September, the sources indicated.

Overall chip demand from other device vendors has also been disappointing, the sources said. Orders for PCs, tablets and handsets remain slow while those for consumer electronics products are relatively brisk thanks to seasonal demand.

IC foundries have seen their clients stay relatively inactive with regards to placing orders, and have now become conservative about their business outlooks for the third quarter of 2016, the sources noted.