Bayer 2024 Capital Markets Day and the Toughest Job in Agribusiness

Does Rodrigo Santos have the hardest job in agribusiness?

Last week, Bayer shared its FY 2023 results and had its Capital Markets Day.

The event was highly anticipated as CEO Bill Anderson had stated he would share the go forward plans with Bayer’s three business units:

• Pharmaceuticals

• Health Care

• Crop Science

Anderson and the Bayer executive team shared the news that the business units would be kept as is, stating the following during his prepared remarks:

In short, on the question of structure, our answer is not now. And this shouldn't be misunderstood as never. Of course, we'll keep an open mind. We always do that, but our priority is on tackling our challenges, boosting performance and creating strategic flexibility. We're convinced that this approach is what's best for Bayer.

With that, Bayer highlighted the four pillars for moving the business forward, deemed the “challenges greatly limiting” Bayer’s ability to choose their own destiny, whether that be as a 3-division company or in smaller parts.:

• building a strong Pharmaceuticals pipeline

• addressing glyphosate and PCB litigation (along with new strategies to mitigate that include lobbying efforts)

• reducing debt (cutting dividend)

• continuing to implement its radical new operating model, Dynamic Shared Ownership (DSO), to improve performance

The “street” didn’t appear to like the news or the guidance delivered on March 5th, with the stock dropping that day and ending down for the week:

Source: Google

The Bayer executive team elaborated on the rationale:

We seriously considered the structure of our company. We did this with the help of numerous external advisers and a set of assessment criteria that included valuation levels, value creation, speed of execution, execution certainty, timing of cash generation and the resulting leverage ratios and the impact on our future optionality.

When it comes to an IPO or a spin, this would require an all-hands-on-deck effort for 18 to 24 months, and cash contributions would be delayed beyond that time frame. In the meantime, the leverage ratios of RemainCo or NewCo could go up significantly, and that could jeopardize our access to reasonable financing.

I incorrectly predicted a Crop Science spinout— whether that meant breaking up the business itself (eg: selling CP separate from seed, or spinning it out together). The trend in all industries, along with in agriculture, is towards singular efforts— focusing and simplifying the business from an internal perspective and external perspective and becoming more attractive to outside investors not wanting the company to “diversify” industries for them.

For now, Bayer has opted to operate in it’s continued pre-existing form.

DSO

It can’t be understated the emphasis on bureaucracy that Bill Anderson sees within the business.

Two weeks ago, I highlighted the Dynamic Shared Ownership model laid out by Bayer in Dynamic Shared Ownership and the Bayer Transition: What is it and Can it Work?

Conceptually, I follow the logic behind DSO. But also see the more pertinent challenges in having a less authoritative, top-down structure along with the pain of transitioning— which means a more significant leadership presence from the top is needed to instil confidence far outside the President’s reach.

In and of itself, this an immense lift for the leaders in each of Bayer’s three business units.

The thing is, DSO isn’t the only change coming to the Bayer Crop Science unit.

Rodrigo Santos and the Hardest Job in Agriculture

Every Chief Executive Officer in the seed and crop protection business has a challenging job — not only do they need the business to operate day-to-day and navigate strategic direction and morale for now and in the future, but publicly traded ones need to deal with activist investors, short sellers, and public scrutiny over every little thing.