Bayer Refocuses on Drugs With Plastics Unit Spinoff Plan

BERLIN (The Deal) -- German chemical and drugs company Bayer on Thursday said it would carve out and list its plastics unit, ending months of speculation about a sale and focusing the company on drugs and agricultural chemicals.

Bayer, of Leverkusen, Germany, didn't say whether it would spin off the unit, known as Bayer MaterialScience, to shareholders or sell it in an initial public offer but analysts say the division is worth at least 10 billion euros ($12.9 billion).

It said it would release more information later today after its supervisory board meets to approve the carve-out. The management board signed off on the plans Sept. 2.

"MaterialScience is a very well positioned business that today operates very modern, competitive, large-scale facilities. We have steadily invested in these facilities, even in difficult economic times," CEO Marijn Dekkers said in a statement.

The company for years has been expected to part with the unit as its legacy chemicals business fails to expand as rapidly as its healthcare and agricultural divisions. Its healthcare business already accounts for 70% of its sales and 88% of its Ebitda.

Bayer, the inventor of aspirin, began moving away from chemicals with a spin off of its specialty chemicals company, now known as Lanxess AG, about a decade ago. It then sold its H.C. Starck GmbH electronics chemicals business to private equity shops Advent International Corp. and the Carlyle Group for 1.15 billion euros in cash and debt in 2006.

MaterialScience should debut in the next 12 to 18 months, Bayer said, and will be given separate branding and a separate headquarters in Leverkusen. Last year the division had sales of 11.2 billion euros. It employs 16,800, including 6,500 in Germany.

Analysts said the time it takes to pare out the unit may yet flush out a suitor for the division.

"It's positive. It's going to remove the conglomerate discount from the company's shares," wrote Commerzbank AG analyst Daniel Wendorff in a note. He has a buy rating on the stock.

Investors appeared to agree, pushing Bayer's shares 5.1%, or 5.40 euros, higher in afternoon Frankfurt trading to 111.55 euros -- a record high.

CEO Dekkers joined in 2010 and has continued to narrow the company's focus. The executive could likely use some cash after Bayer in May agreed to buy the over-the-counter business of Merck & Co. for $14.2 billion. The Merck portfolio includes Claritin allergy medications and Dr. Scholl's footcare products.

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