Frankfurt, Germany, Dec. 22--Bayer AG said Monday that it will take charges in the fourth quarter exceeding €2.2 billion ($2.7 billion), mainly because of the recently announced partial splitoff of its chemicals and polymers businesses.
The charges, which Bayer had warned of at a November news conference, will push the chemicals and pharmaceuticals firm to a loss for the year. Bayer, which didn't provide a forecast for the net loss, said it also will post a loss before interest and taxes this year.
Excluding the charges, the company reiterated that its earnings before interest and taxes will increase by a double-digit percentage this year.
The planned splitoff of the operations, known as NewCo and which Bayer plans to list on a stock exchange by early 2005 at the latest, accounts for roughly €1 billion of the charges, Bayer said.
A further €500 million in charges relates to the consolidation of its pharmaceutical facilities, including the closure of a research center in Kyoto, Japan.
The company also said it will write off the value of its holdings in Dystar and CuraGen. The charges are noncash items and won't affect Bayer's cash flow or its ability to pay a dividend.
Reaction, meanwhile, was mixed to the size of the charges. "I did expect a write-down of this magnitude," said E*Trade Financial analyst Sreejith Banerji, who has a "hold" rating on the stock. In contrast, Sal. Oppenheim & Cie. analyst Petra Meyer and Ulrich Huwald of MM Warburg said the charges were higher than they had expected. Both had forecast charges totaling €500 million.
Landesbank Rheinland Pfalz analyst Silke Stegemann, who has an "outperform" rating on the stock, said she had expected a small net profit this year, with charges less than €1 billion. Stegemann added that lumping all the charges together is smart as it means the release of all the company's bad news simultaneously, allowing it to start 2004 with a clean sheet.
