Acquisitions, Divestitures and Discontinued Operations

Acquisitions

On January 3, 2017, Bayer acquired the Cydectin™ portfolio in the United States from Boehringer Ingelheim Vetmedica Inc., St. Joseph, United States. The acquisition comprises the CYDECTIN Pour-On, CYDECTIN Injectable and CYDECTIN Oral Drench endectocides for cattle and sheep. The acquisition is intended to strengthen the antiparasitics portfolio in the United States through the addition of endectocides. A purchase price of €158 million was agreed. The purchase price mainly pertained to brands and goodwill.

The effects of this transaction – as of the acquisition date – on the Group’s assets and liabilities in the first nine months of 2017 are shown in the following table. The transaction resulted in the following cash outflow:

Acquired Assets, Assumed Liabilities and Adjustments (Fair Values at the Respective Acquisition Dates)

 

 

9M 2017

 

 

€ million

Goodwill

 

51

Trademarks

 

85

Production rights

 

4

Inventories

 

18

Net assets

 

158

Changes in noncontrolling interest

 

Purchase price

 

158

Net cash outflow for acquisitions

 

158

Planned acquisitions

With regard to the planned acquisition of Monsanto, we refer to the Annual Report 2016. Closing of the transaction is currently expected in early 2018.

Divestments and discontinued operations

On April 1, 2017, Consumer Health completed the sale of a production facility in Pointe-Claire, Canada, to Famar Montréal Inc., Montréal, Canada. The base sale price was CAD1 million.

On September 12 and 29, 2017, Bayer AG sold shares it held in Covestro AG. The total number of shares sold amounted to around 33 million, or 16.3% of the outstanding shares. The buyers of the approximately 14 million shares sold on September 29 agreed to be bound by a lock-up arrangement pursuant to which they will not sell the shares they purchased until at least December 11, 2017. Due to a contractual agreement, Bayer will retain the economic exposure to the price of these shares until at least the same date.

In the previous quarters, Bayer had already reduced its interest in Covestro by 47.25 million shares, or 23.3% of the shares issued by the company. In the first quarter, Bayer sold 22 million shares in Covestro AG to institutional investors at a price of €66.50 per share. Then, in the second quarter, Bayer sold a further 17.25 million shares in Covestro AG to institutional investors at a price of €62.25 per share. In addition, 8 million shares in Covestro AG were deposited in Bayer Pension Trust e.V., at a price of €63.04.

The reduction of Bayer’s interest through September 12, 2017, as previously detailed, had a €4.2 billion positive effect on Bayer Group equity, which was recognized in other changes in equity. Of this figure, €2.7 billion was attributable to Bayer AG stockholders, and €1.5 billion to noncontrolling interest. As part of the deconsolidation at the end of September, the noncontrolling interest in Covestro AG equity was completely derecognized.

Bayer currently holds 24.6% of the shares in the capital stock of Covestro AG. Bayer Pension Trust holds a further 8.9%. In addition, Bayer and Covestro have signed a control termination agreement, as part of which Bayer has undertaken not to exercise certain voting rights at the Covestro Annual General Meeting. Thus, Bayer lost de facto control over Covestro at the end of September 2017.

As such, the deconsolidation of the Covestro Group took place at the end of the third quarter, as did the first-time inclusion of Covestro Group as an associate, due to the significant influence that Bayer retains. At the end of September, the fair value of the remaining interest, €3.6 billion, was determined on the basis of the share price.

The deconsolidation and remeasurement of the remaining interest in Covestro resulted in overall income before taxes in the amount of €2.9 billion, which is included in income from discontinued operations. This figure reflected a gain of €2.4 billion from the remeasurement of the remaining interest, and a gain of €0.5 billion from the deconsolidation. The overall gain after taxes amounts to €2.8 billion. In addition, values in the amount of minus €0.6 million recogized in other comprehensive income were reclassified to retained earnings attributable to Bayer AG stockholders.

The divestitures had the following effect in the first nine months of 2017:

Divestitures

 

 

9M 2017

 

thereof Covestro

 

 

€ million

 

€ million

Goodwill

 

254

 

252

Patents and technologies

 

18

 

18

Marketing and distribution rights

 

28

 

28

Other rights

 

33

 

33

Property, plant and equipment

 

4,206

 

4,206

Other noncurrent assets

 

233

 

233

Deferred tax assets

 

506

 

506

Inventories

 

1,840

 

1,828

Other current assets

 

3,005

 

3,005

Assets held for sale

 

3

 

3

Cash and cash equivalents

 

637

 

637

Pension provisions

 

(1,201)

 

(1,201)

Other provisions

 

(779)

 

(779)

Financial liabilities

 

(1,809)

 

(1,809)

Other liabilities

 

(1,715)

 

(1,715)

Divested net assets

 

5,259

 

5,245

The retained 24.6% stake in Covestro is classified as an associate owing to the remaining material interest, and will be accounted for using the equity method.

The following table contains summarized data from the interim statement published by Covestro, and shows the respective amounts recognized in the consolidated financial statements of the Bayer Group.

Data from the Statements of Financial Position of Covestro

 

 

Sep. 30, 2017

 

 

€ million

Noncurrent assets

 

5,507

Current assets

 

5,454

Noncurrent liabilities

 

(2,961)

Current liabilities

 

(2,868)

Equity

 

5,132

Shareholding (%)

 

24.6%

Share of equity

 

1,262

Group adjustments

 

2,362

Carrying amount

 

3,624

The Group adjustments of the data from the statements of financial position include fair value adjustments to the assets and liabilities of Covestro in connection with the equity method purchase price allocation. The proportionate market value in the amount of €3.6 billion is considered to be an assumed purchase price. Currently the purchase price allocation has not been concluded. According to the provisional purchase price allocation, the fair value adjustments to the assets and liabilities were mainly allocable to noncurrent assets (€1.9 billion), current assets (€0.1 billion), noncurrent liabilities (€0.6 billion) and goodwill (€1.0 billion).

The fair value adjustments to the assets and liabilities will be measured using the equity method.

As of the de facto loss of control, Covestro fulfills the conditions for presentation as a discontinued operation for all of the quarters prior to deconsolidation, including the previous year.

The sale of the Diabetes Care business to Panasonic Healthcare Holdings Co., Ltd., Tokyo, Japan, for around €1 billion was completed on January 4, 2016. The sale includes the leading Contour™ portfolio of blood glucose monitoring meters and strips, as well as other products such as Breeze™2, Elite™ and Microlet™ lancing devices.

The sale of the Diabetes Care business also comprises further significant obligations by Bayer that will be fulfilled over a period of up to two years subsequent to the date of divestment. The sale proceeds will be recognized accordingly over this period and reported as income from discontinued operations. Deferred income has been recognized in the statement of financial position and will be dissolved as the obligations are fulfilled. An amount of €413 million was recognized in sales in the first nine months of 2017.

The obligations to be fulfilled over a period of up to two years after the divestment of the Diabetes Care business are also reported as discontinued operations in the income statement and the statement of cash flows. They resulted in sales of €36 million in the first nine months of 2017.

The items in the statement of financial position pertaining to the Diabetes Care business are shown in the segment reporting under “All Other Segments.” In addition to the aforementioned deferred income (€49 million), the statement of financial position includes other receivables (net: €28 million), deferred tax assets (net: €12 million), income tax liabilities (€57 million) and miscellaneous provisions (€4 million).

The sale of the Consumer business (CS Consumer) of Bayer’s Environmental Science unit to SBM Développement SAS, Lyon, France, was completed on October 4, 2016. These activities have been reported as discontinued operations since the second quarter of 2016.

The income statements of the discontinued operations for the third quarter of 2017 are given below:

Income Statements for Discontinued Operations

 

 

Covestro

 

Diabetes Care

 

CS Consumer

 

Total

 

 

Q3 2016

Q3 2017

 

Q3 2016

Q3 2017

 

Q3 2016

Q3 2017

 

Q3 2016

Q3 2017

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

EBIT = income after income taxes, plus income taxes, plus financial result

Net sales

 

3,004

3,513

 

139

137

 

29

 

3,172

3,650

Cost of goods sold

 

(2,112)

(2,279)

 

(12)

(8)

 

(27)

 

(2,151)

(2,287)

Gross profit

 

892

1,234

 

127

129

 

2

 

1,021

1,363

Selling expenses

 

(329)

(326)

 

(1)

 

(26)

 

(355)

(327)

Research and development expenses

 

(67)

(68)

 

 

(6)

 

(73)

(68)

General administration expenses

 

(104)

(118)

 

(3)

 

(5)

 

(109)

(121)

Other operating income / expenses

 

6

2,886

 

1

1

 

(2)

 

5

2,887

EBIT1

 

398

3,608

 

128

126

 

(37)

 

489

3,734

Financial result

 

(41)

(36)

 

 

 

(41)

(36)

Income before income taxes

 

357

3,572

 

128

126

 

(37)

 

448

3,698

Income taxes

 

(98)

(255)

 

(26)

(20)

 

9

 

(115)

(275)

Income after income taxes

 

259

3,317

 

102

106

 

(28)

 

333

3,423

of which attributable to noncontrolling interest

 

99

318

 

 

 

99

318

of which attributable to Bayer AG stockholders (net income)

 

160

2,999

 

102

106

 

(28)

 

234

3,105

For the first nine months of 2017, the income statements of the discontinued operations are as follows:

Income Statements for Discontinued Operations

 

 

Covestro

 

Diabetes Care

 

CS Consumer

 

Total

 

 

9M 2016

9M 2017

 

9M 2016

9M 2017

 

9M 2016

9M 2017

 

9M 2016

9M 2017

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

EBIT = income after income taxes, plus income taxes, plus financial result

Net sales

 

8,829

10,556

 

434

449

 

195

 

9,458

11,005

Cost of goods sold

 

(6,292)

(6,973)

 

(133)

(22)

 

(109)

 

(6,534)

(6,995)

Gross profit

 

2,537

3,583

 

301

427

 

86

 

2,924

4,010

Selling expenses

 

(987)

(1,016)

 

(8)

(3)

 

(83)

 

(1,078)

(1,019)

Research and development expenses

 

(193)

(200)

 

(2)

 

(10)

 

(205)

(200)

General administration expenses

 

(320)

(345)

 

(10)

(7)

 

(9)

 

(339)

(352)

Other operating income / expenses

 

64

2,963

 

(4)

4

 

(57)

 

3

2,967

EBIT1

 

1,101

4,985

 

277

421

 

(73)

 

1,305

5,406

Financial result

 

(162)

(124)

 

 

 

(162)

(124)

Income before income taxes

 

939

4,861

 

277

421

 

(73)

 

1,143

5,282

Income taxes

 

(256)

(585)

 

(46)

(69)

 

21

 

(281)

(654)

Income after income taxes

 

683

4,276

 

231

352

 

(52)

 

862

4,628

of which attributable to noncontrolling interest

 

232

759

 

 

 

232

759

of which attributable to Bayer AG stockholders (net income)

 

451

3,517

 

231

352

 

(52)

 

630

3,869

In the third quarter of 2017, the discontinued operations affected the Bayer Group statement of cash flows as follows:

Statements of Cash Flows for Discontinued Operations

 

 

Covestro

 

Diabetes Care

 

CS Consumer

 

Total

 

 

Q3 2016

Q3 2017

 

Q3 2016

Q3 2017

 

Q3 2016

Q3 2017

 

Q3 2016

Q3 2017

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

Net cash provided by (used in) operating activities (net cash flow)

 

668

783

 

(11)

25

 

27

 

684

808

Net cash provided by (used in) investing activities

 

(545)

(355)

 

 

 

(545)

(355)

Net cash provided by (used in) financing activities

 

(162)

(107)

 

11

(25)

 

(27)

 

(178)

(132)

Change in cash and cash equivalents

 

(39)

321

 

 

 

(39)

321

In the first nine months of 2017, the effects of the discontinued operations on the statement of cash flows were as follows:

Statements of Cash Flows for Discontinued Operations

 

 

Covestro

 

Diabetes Care

 

CS Consumer

 

Total

 

 

9M 2016

9M 2017

 

9M 2016

9M 2017

 

9M 2016

9M 2017

 

9M 2016

9M 2017

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

Net cash provided by (used in) operating activities (net cash flow)

 

1,146

1,473

 

767

37

 

9

 

1,922

1,510

Net cash provided by (used in) investing activities

 

(670)

(742)

 

 

 

(670)

(742)

Net cash provided by (used in) financing activities

 

1,183

(224)

 

(767)

(37)

 

(9)

 

407

(261)

Change in cash and cash equivalents

 

1,659

507

 

 

 

1,659

507

As no cash is assigned to the discontinued operations Diabetes Care and CS Consumer, the balance of the cash provided is deducted again in financing activities.

Assets held for sale

On October 13, 2017, Bayer reached an agreement with BASF concerning the sale of selected Crop Science businesses in light of the planned acquisition of Monsanto. The assets to be sold include Bayer’s global glufosinate-ammonium business and the related LibertyLink technology for herbicide tolerance, a substantial part of the field crop seeds business, as well as respective research and development capabilities. The seeds businesses being divested include the global cotton seed business (excluding India and South Africa), the North American and European canola seed businesses and the soybean seed business. A base purchase price of €5.9 billion was agreed. It excludes the value of any net working capital and is subject to the customary price adjustment mechanisms.

In connection with the sale, €1,824 million in assets and €49 million in liabilities was classified as held for sale according to IFRS 5 as of September 30. This total mainly comprised property, plant and equipment (€1,002 million), goodwill (€428 million), other intangible assets (€278 million) and provisions for pensions and other post-employment benefits (€34 million).

The transaction is subject to regulatory approval as well as the successful closing of Bayer’s acquisition of Monsanto. Bayer will continue to own, operate and maintain these businesses until the closing of this divestiture.