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Bayer has sought permission to increase its capital by up to 35 per cent to allow the chemicals conglomerate the flexibility to handle continued litigation problems, sending its shares down more than 5 per cent on Friday.
Shareholders learned of Bayer’s plan to seek the permission in a letter on Friday from Norbert Winkeljohann, chair of the company’s supervisory board.
Winkeljohann told investors that Bayer was seeking the permission to serve as a “proactive financial risk management measure”, although the company denied having plans to use the power.
The chair reassured shareholders that any capital raise would not be used to finance mergers or acquisitions and that Bayer recognised it needed to be “mindful” of the dilutive effect of issuing new capital on existing shareholders.
Bayer, whose products range from industrial chemicals to agricultural chemicals and pharmaceuticals, faces a range of challenges, many of them related to legal challenges in the US.
The biggest problems relate to claims that glyphosate, an ingredient in the Roundup weedkiller made by its US-based Monsanto subsidiary, can cause cancer. Both Bayer and US federal regulators insist there is no evidence the chemical poses the suggested risk. However, the company has €6bn set aside in provisions to cover the litigation’s potential costs.
Winkeljohann’s letter said: “We . . . stress that while this proposal authorises the issuance of capital, we do not currently have any specific plans to utilise this authorisation. Having the authorisation would however allow us to avoid needing to access debt on unfavourable terms, increasing our cost of capital.”
The authorisation would allow the company to issue shares equivalent to 35 per cent of the currently issued equity. Existing shareholders would be offered priority rights to subscribe to any new issue.
Bayer’s shares were down 5.2 per cent in afternoon trading in Frankfurt at €23.56.
As well as facing pressure to resolve the litigation problems, Bayer had net financial debt of €32.6bn at the end of December, a level that the company has acknowledged it needs to reduce.
Winkeljohann reassured shareholders in his letter that any issuances would be “carefully evaluated” to ensure they would be done only in a manner that would benefit shareholders.
Bayer on Wednesday told shareholders it would face a third consecutive year of declining profits in 2025, a year that chief executive Bill Anderson would be the “most difficult” of the company’s planned turnaround.
The shareholder meeting is scheduled for April 25.
“As this is an essential step to address two of our key priorities — litigation and deleveraging — we appreciate your support on this resolution at the Annual Stockholders’ Meeting,” Winkeljohann wrote.
