Bayer confirms profits slump

Bayer could be a takeover target after reporting poor results

German chemical and pharmaceutical giant Bayer gave the markets more bad news on Thursday when it posted second-quarter profits well below expectations.

The results came a day after it withdrew a top-selling drug, fuelling rumours that its days as an independent company might be numbered.

Bayer is one of the last chemical-pharmaceutical hybrids

Bayer repeated its profit warning of Wednesday, saying that the combined effect of recalling anti-cholesterol drug Baycol over concerns of potentially deadly side effects, and slowing economic growth in Europe, Asia and North America, would cut this year's profits.

Bayer's second-quarter operating profit tumbled 44.8% to 508 million euros.

Bayer shares were down 3.56% at 36.02 euros, a 21-month low in early trade. With Wednesday's 18% fall, about 6.8bn euros have been knocked off Bayer's market value in the last two days.

Breaking-up?

The Leverkusen-based group also unveiled cost cutting measures that could save the company 1.5bn euros ($1.3bn) per year by 2005.

But investors appear unconvinced, with speculation mounting that there could be break-up of one of the last remaining chemical/pharmaceutical hybrid companies.

Bayer has been touted as prime takeover target as it has fallen behind its rivals in the pharmaceutical business over the past 10 years.

But Bayer's large under-performing chemicals division businesses could act as its saviour because it would be a difficult asset to sell in a weakening market.

Analysts doubt another chemical company would bid but rather that a corporate finance house might make a break-up bid for the company.

Drug problem

The cost of the Baycol withdrawal will cut 600m to 650m euros off 2001's profits, ensuring that Bayer would not meet its already reduced profit targets.

Baycol/Lipobay was pulled from the market because of reports of potentially deadly side effects involving muscular weakness and kidney failure.

Thirty-one deaths might be linked to the drug in the US, the Food and Drug Administration (FDA) said on Wednesday.

Bayer has said it does not expect claims for compensation from Baycol users.

China deal

Bayer on Thursday also revealed a large Chinese expansion plan, starting with a joint venture to build a $450m polycarbonate plant in Shanghai.

The joint venture with Chlor Alkali marks the first step of Bayer's $3.1bn investment plan to set up a chemical complex in the eastern Chinese city.

Under the deal, which took three years to negotiate, Bayer would provide 90% of the capital and control the operations of the venture.