Bayer (ETR:BAYGN) AG (OTC:BAYRY) is significantly reducing its dividend by 95% as a strategic move to a legal minimum for a period of three years, a move aimed at helping the company recover from the financial strain caused by its acquisition of Monsanto Co., which resulted in substantial debt and numerous lawsuits.
The unexpected magnitude of the cut underscores the difficulties Bayer faces in conserving cash, revitalizing its drug development efforts, and overcoming the repercussions of the $63 billion purchase of Roundup's parent company in 2018.
Bayer’s shares fell 0.15% in Frankfurt.
Specifically, the company announced a drastic reduction in its dividend to just 11 euro cents ($0.12) per share for 2023, a steep decline from €2.40 the previous year, adhering to the minimum mandated by German law.
Bayer is contending with thousands of legal claims alleging that Roundup, an herbicide developed by Monsanto, causes cancer, a claim the company disputes. With its debt exceeding €38.7 billion and the burden of legal expenses and increasing interest rates, financial management is becoming more challenging for the Leverkusen-based pharma company.
CEO Bill Anderson, appointed last year to lead a turnaround, noted that the decision to cut the dividend “was not taken lightly.”
According to analysts, this move is expected to save Bayer approximately €2.3 billion annually over this period. However, given the ongoing legal and pension liabilities, analysts anticipate that the company will need to undertake further significant strategic measures to stabilize its finances.