Germany’s Bayer expects large margin increase after Monsanto deal

SINGAPORE (ICIS)–Bayer Group on Tuesday said that it expects a significant increase in its crop science earnings margin following its acquisition of US major Monsanto, with newly-launched pharmaceutical products also boosting overall sales.

Bayer and Monsanto signed a definitive merger agreement on 14 September that enables Bayer to acquire Monsanto for $128 per share in an all-cash transaction.

Closing of the transaction is expected by the end of 2017.

“It is planned for the clean earnings before interest, tax, depreciation and amortisation (EBITDA) margin of the combined agricultural business to reach more than 30% after the third year following closing of the transaction (2015 pro forma: approximately 27 percent),” Bayer added in a statement.

The company also expects “above-market” average annual sales growth in the coming years in the agricultural business, accounting for the agreed acquisition of Monsanto, the company said in the statement following an investor’s conference.

Pro forma sales of the combined business of Bayer’s crop science division and Monsanto amounted to €23.1bn last year.

In the pharmaceuticals business, Bayer expects average annual sales growth of about 6% by the end of 2018, after adjusting for currency and portfolio effects, with margin before special items to grow between 32% and 34%, up from 30.1% last year, it said in a statement.

The company now expects the combined peak annual sales potential of the recently launched pharmaceutical products from previously at least €7.5bn to now more than €10bn, buoyed by its anticoagulant, eye and cancer medicines as well as it pulmonary hypertension treatment.

At its consumer health unit, Bayer aims to grow its average annual sales by between 4% and 5% by the end of 2018, with a clean earnings before EBITDA margin of about 25%, up from 24.0% in 2015.