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, which is subject to the usual price adjustment mechanisms. The purchase price was provisionally allocated mainly to trademarks and goodwill. The purchase price allocation currently remains incomplete pending compilation and review of the relevant financial information. It is therefore possible that changes will be made in the allocation of the purchase prices to the individual assets.

The effects of this transaction – as of the acquisition date – on the Group’s assets and liabilities in the first quarter 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)

 

 

Q1 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

On September 14, 2016, Bayer signed a definitive merger agreement with Monsanto Company, St. Louis, Missouri, United States, which provides for Bayer’s acquisition of all outstanding shares in Monsanto Company against a cash payment of US$128 per share. At the time this corresponded to an expected transaction volume of approximately US$66 billion, comprising an equity value (purchase price) of approximately US$56 billion and net debt to be assumed in an amount of US$10 billion, which includes pension obligations as of May 31, 2016, as well as liabilities for payments under stock-based compensation programs. Bayer thus has a contingent financial commitment in the amount of approximately US$56 billion to acquire Monsanto’s entire outstanding capital stock. The agreed transaction has been partially hedged against the euro/U.S. dollar currency risk using derivatives contracts.

The transaction brings together two different, but highly complementary businesses. Monsanto is a leading global provider of agricultural products, including seeds and seed technologies, herbicides, and digital platforms to give farmers agronomic recommendations. The combined business will offer a comprehensive range of products and solutions for farmers, including enhanced solutions in high-quality seeds and traits, digital farming, and crop protection. The combination also brings together both companies’ leading innovation capabilities and R&D technology platforms.

The stockholders of Monsanto Company approved the merger with the requisite majority on December 13, 2016. The transaction remains subject to customary closing conditions, including relevant antitrust and other regulatory approvals. Closing of the transaction is currently expected by the end of 2017.

The merger agreement provides for payment by Bayer of a US$2 billion reverse break fee including, in particular, in the event that the necessary antitrust approvals are not granted by June 14, 2018, and Bayer or Monsanto therefore terminates the merger agreement.

Divestments

On February 17, 2017, Covestro agreed to sell a North American spray polyurethane foam system house to Accella Polyurethane Systems LLC, Maryland Heights, United States. A purchase price of €47 million was agreed. In connection with the sale, €12 million in assets was classified as held for sale according to IFRS 5. Closing of the transaction is expected in the second quarter of 2017.

On April 1, 2017, Consumer Health completed the sale of a production facility in Pointe-Claire, Canada, to Famar Montréal Inc., Montréal, Canada. The related assets of €6 million were recognized as held for sale in the statement of financial position as of March 31, 2017.

A further amount of €10 million was recognized as assets held for sale in the statement of financial position as of March 31, 2017.

Discontinued operations

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 €117 million was recognized in sales in the first quarter 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 €11 million in the first quarter 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 (€351 million), the statement of financial position includes other receivables (net: €52 million), deferred tax assets (net: €53 million), income tax liabilities (€60 million) and miscellaneous provisions (€4 million).

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

Income Statements for Discontinued Operations

 

 

Diabetes Care

 

CS Consumer

 

Total

 

 

Q1 2016

Q1 2017

 

Q1 2016

Q1 2017

 

Q1 2016

Q1 2017

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

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

Net sales

 

149

128

 

87

 

236

128

Cost of goods sold

 

(96)

(7)

 

(42)

 

(138)

(7)

Gross profit

 

53

121

 

45

 

98

121

Selling expenses

 

(3)

(1)

 

(26)

 

(29)

(1)

Research and development expenses

 

(2)

 

(1)

 

(3)

General administration expenses

 

(7)

(2)

 

(2)

 

(9)

(2)

Other operating income / expenses

 

2

5

 

(1)

 

1

5

EBIT1

 

43

123

 

15

 

58

123

Financial result

 

 

 

Income before income taxes

 

43

123

 

15

 

58

123

Income taxes

 

(4)

(24)

 

(4)

 

(8)

(24)

Income after income taxes

 

39

99

 

11

 

50

99

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

Statements of Cash Flows for Discontinued Operations

 

 

Diabetes Care

 

CS Consumer

 

Total

 

 

Q1 2016

Q1 2017

 

Q1 2016

Q1 2017

 

Q1 2016

Q1 2017

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

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

 

819

15

 

(49)

 

770

15

Net cash provided by (used in) investing activities

 

 

 

Net cash provided by (used in) financing activities

 

(819)

(15)

 

49

 

(770)

(15)

Change in cash and cash equivalents

 

 

 

As no cash is assigned to discontinued operations, the balance of the cash provided is deducted again in financing activities.