Acquisitions, Divestitures and Discontinued Operations

Acquisitions

In the first nine months of 2016, purchase price adjustments and adjustments made to purchase price allocations relating to previous years’ transactions amounted to minus €5 million. Adjustments made to purchase price allocations and other adjustments increased total goodwill by €9 million. This development mainly resulted from the adjustment made to a purchase price allocation described below.

In connection with the global purchase price allocation of SeedWorks India Pvt. Ltd., India, which was acquired in July 2015, improved information about the acquired assets led to a decline of €23 million in intangible assets and corresponding increases of €13 million and €8 million in goodwill and deferred tax liabilities, respectively, in the opening statement of financial position in the first quarter of 2016. In addition, the purchase price declined by €2 million as a result of the final purchase price negotiations.

On September 14, 2016, Bayer signed a definitive merger agreement under which Bayer will acquire Monsanto Company, St. Louis, Missouri, United States, for U.S. $128 per share in an all-cash transaction. The offer corresponds to an expected transaction volume of around U.S. $66 billion, comprising an equity value (purchase price) of approx. U.S. $57 billion and the assumption of U.S. $9 billion in net debt, including pension liabilities (as of May 31, 2016). In connection with the merger agreement, there is a contingent financial commitment of approximately U.S. $57 billion to acquire the entire share capital of Monsanto for a cash consideration.

This transaction brings together two different, but highly complementary businesses. Monsanto is a leading global provider of agricultural products for farmers, including seeds, biotechnology traits, herbicides and digital platforms to give farmers agronomic recommendations. The combined business will offer a broad set of solutions to meet growers’ current and future needs, including enhanced solutions in seeds and traits, digital agriculture and crop protection. The combination also brings together both companies' leading innovation capabilities and R&D technology platforms.

Bayer intends to finance the transaction with a combination of debt and equity. The equity component of approximately U.S. $19 billion is expected to be raised through an issuance of mandatory convertible bonds and through a rights issue with subscription rights. The agreed transaction has been partially hedged against the euro/U.S. dollar currency risk using derivatives contracts. Syndicated bank financing for approximately U.S. $57 billion was initially committed by Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan.

The transaction is subject to various conditions, including approval by a majority of Monsanto shareholders, regulatory clearances and other customary closing conditions. Closing is expected by the end of 2017.

In addition, Bayer has committed to a U.S. $2 billion reverse antitrust break fee, if the proposed transaction fails to obtain the requisite antitrust approvals in time.

Divestitures and 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 transaction includes the leading Contour™ portfolio of blood glucose monitoring meters and strips, as well as other products such as Breeze™2 and Elite™ along with Microlet™ lancing devices.

The effect of this divestiture in the first nine months of 2016 is shown in the table:

Divestitures

 

 

9M 2016

 

 

€ million

Assets held for sale

 

183

Liabilities directly related to assets held for sale

 

(112)

Divested net assets

 

71

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 divestiture. The sale proceeds will be recognized accordingly over a two-year 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 €375 million was recognized in sales in the first nine months of 2016. The €71 million outflow of net assets is shown in the cost of goods sold.

The obligations to be fulfilled over the next two years in connection with the divestiture of the Diabetes Care business are also reported as discontinued operations in the income statement and statement of cash flows. They resulted in sales of €59 million in the first nine months of 2016. This information is provided from the standpoint of the Bayer Group and does not present these activities as a separate entity. It is therefore not possible to compare these sales against the proceeds from operational product sales achieved in 2015.

The items in the statement of financial position pertaining to the Diabetes Care business are shown in the segment reporting under other segments. In addition to the aforementioned deferred income (€591 million), the statement of financial position includes other receivables (net: €38 million), deferred tax assets (net: €90 million), income tax liabilities (€60 million) and provisions for restructuring expenses (€1 million).

The sale of the Consumer business (CS Consumer) of Bayer’s Environmental Science unit to SBM Développement SAS, Lyon, France, was completed on October 4, 2016. The Consumer business encompasses the Bayer Garden and Bayer Advanced businesses in Europe and North America. These activities are reported as a discontinued operation.

The income statements of the discontinued operations for the third quarter of 2016 are given below:

Income Statements for Discontinued Operations

 

 

Diabetes Care

 

CS Consumer

 

Total

 

 

Q3 2015

Q3 2016

 

Q3 2015

Q3 2016

 

Q3 2015

Q3 2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

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

Net sales

 

232

139

 

32

29

 

264

168

Cost of goods sold

 

(98)

(12)

 

(16)

(27)

 

(114)

(39)

Gross profit

 

134

127

 

16

2

 

150

129

Selling expenses

 

(91)

 

(19)

(26)

 

(110)

(26)

Research and development expenses

 

(12)

 

(2)

(6)

 

(14)

(6)

General administration expenses

 

(9)

 

(1)

(5)

 

(10)

(5)

Other operating income / expenses

 

(6)

1

 

(1)

(2)

 

(7)

(1)

EBIT1

 

16

128

 

(7)

(37)

 

9

91

Financial result

 

 

 

Income before income taxes

 

16

128

 

(7)

(37)

 

9

91

Income taxes

 

(26)

 

2

9

 

2

(17)

Income after income taxes

 

16

102

 

(5)

(28)

 

11

74

For the first nine months of 2016, the income statements of the discontinued operations are as follows:

Income Statements for Discontinued Operations

 

 

Diabetes Care

 

CS Consumer

 

Total

 

 

9M 2015

9M 2016

 

9M 2015

9M 2016

 

9M 2015

9M 2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

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

Net sales

 

705

434

 

205

195

 

910

629

Cost of goods sold

 

(284)

(133)

 

(101)

(109)

 

(385)

(242)

Gross profit

 

421

301

 

104

86

 

525

387

Selling expenses

 

(270)

(8)

 

(72)

(83)

 

(342)

(91)

Research and development expenses

 

(34)

(2)

 

(5)

(10)

 

(39)

(12)

General administration expenses

 

(27)

(10)

 

(4)

(9)

 

(31)

(19)

Other operating income / expenses

 

(4)

 

(1)

(57)

 

(1)

(61)

EBIT1

 

90

277

 

22

(73)

 

112

204

Financial result

 

 

 

Income before income taxes

 

90

277

 

22

(73)

 

112

204

Income taxes

 

(12)

(46)

 

(7)

21

 

(19)

(25)

Income after income taxes

 

78

231

 

15

(52)

 

93

179

The liabilities of the Consumer business of Bayer’s Environmental Science unit that were held for sale are shown in the following table:

Assets and Liabilities Held for Sale

 

 

Sep. 30, 2016

 

 

€ million

Provisions for pensions and other post-employment benefits

 

6

Other provisions

 

8

Liabilities directly related to assets held for sale

 

14

In the third quarter of 2016, 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

 

 

Q3 2015

Q3 2016

 

Q3 2015

Q3 2016

 

Q3 2015

Q3 2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

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

 

24

(11)

 

74

27

 

98

16

Net cash provided by (used in) investing activities

 

(1)

 

(1)

 

(2)

Net cash provided by (used in) financing activities

 

(23)

11

 

(73)

(27)

 

(96)

(16)

Change in cash and cash equivalents

 

 

 

In the first nine months of 2016, the effects of the discontinued operations on the statement of cash flows were as follows:

Statements of Cash Flows for Discontinued Operations

 

 

Diabetes Care

 

CS Consumer

 

Total

 

 

9M 2015

9M 2016

 

9M 2015

9M 2016

 

9M 2015

9M 2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

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

 

80

767

 

22

9

 

102

776

Net cash provided by (used in) investing activities

 

(2)

 

(1)

 

(3)

Net cash provided by (used in) financing activities

 

(78)

(767)

 

(21)

(9)

 

(99)

(776)

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.