A Break-Up of Bayer Could Unlock ~85%+ Upside
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“They say that breaking up is hard to do
Now I know
I know that it's true.”
- Breaking Up Is Hard To Do, Neil Sedaka & Howard Greenfield.
In this issue of the newsletter, I present something of an equity unusual situation - a European large-cap, blue chip name that trades at a substantial discount to peers and its fundamental sum-of-the-parts (SOTP) value.
Bayer AG (BAYN) is a ~€60bn market cap company and a component of the European STOXX 50 index (SX5E) with market-leading positions and brands in many of its end-markets. Yet it is heavily out-of-favour with investors, valued at just ~7x EBITDA vs. an average multiple of ~12x for comparable listed peers across each of its market segments.
The reasons for its depressed share price relate to historic litigation and management issues that I believe are now in the process of being resolved. I will acknowledge that SOTP situations frequently do not work and can be value traps (usually due to entrenched management with cultural or alignment issues), however in this instance there are sufficient catalysts now in place for the SOTP value story to play out.
Specifically, BAYN recently appointed a new CEO, following the appearance of two prominent activists on its shareholder register. As such, I believe the ground conditions are set for substantial value to be unlocked, most probably via a break-up event or spin-off of one its business segments.
Bayer AG (BAYN) is a German-headquartered pharmaceutical, crop science and consumer health conglomerate, with market-leading positions and brands in each of its end-markets.
BAYN is a live activist / break-up situation following the emergence of two activist shareholders on its shareholder register and the appointment of a new CEO who is open to the idea of breaking up the existing corporate structure.