6.2 Business Combinations and Other Acquisitions
Acquisitions in 2014
Acquisitions are accounted for by the acquisition method, the results of the acquired businesses therefore being included in the consolidated financial statements as of the respective acquisition dates. The purchase prices of acquired companies domiciled outside the eurozone were translated at the exchange rates in effect at the respective acquisition dates.
The total purchase price of the acquisitions made in 2014 was €13,741 million (2013: €1,441 million). The purchase prices of the acquired companies or businesses were settled mainly in cash. Total goodwill of €5,990 million (2013: €801 million) arose on these acquisitions. It related principally to the following transactions:
On March 6, 2014, CropScience completed the acquisition of all the shares of Biagro Group, a producer and distributor of biological seed treatment solutions headquartered in General Las Heras in the province of Buenos Aires, Argentina. The company operates production facilities in Argentina and Brazil. Its portfolio of established brands includes seed-applied inoculants, plant-growth-promoting microorganisms and other products for integrated pest management based on bacterial and fungal strains. The acquisition will help CropScience to build on the success of its soybean seed business in Latin America. The acquisition remains subject to the approval of the Argentinian antitrust authorities. A one-time payment and purchase price adjustment totaling €10 million were agreed upon along with potential milestone payments reflected at €6 million in the purchase price allocation. The milestone payments are mainly dependent on the achievement of certain sales targets and product approvals. The purchase price mainly pertained to the technology platform and goodwill. Sales of €6 million were recorded since the acquisition date.
In March 2014, Pharmaceuticals successfully completed the takeover offer for the shares of Algeta asa, Oslo, Norway, and acquired 100% of the outstanding shares. Bayer issued a takeover offer for all the shares of Algeta at a price of nok362 per share in cash on January 20, 2014. On expiration of the offer deadline, Bayer had received acceptances from Algeta shareholders representing about 98% of the share capital. On March 14, 2014, a compulsory acquisition process was carried out to obtain the remaining 2% of the shares, also at a price of nok362 per share.
Algeta develops novel cancer therapies based on its world-leading, patented technologies. The company develops alpha-pharmaceuticals designed to target cancers using the unique properties of alpha particle radiation. HealthCare and Algeta have collaborated since 2009 to develop and commercialize radium-223 dichloride, which was approved in the United States in May 2013 under the tradename XofigoTM. The acquisition strengthens the oncology business of Pharmaceuticals. The purchase price was €1,974 million, including €35 million for the settlement of the pre-existing relationship between Algeta and Bayer. The latter amount represents the value of the advantage enjoyed by the acquirer from the contractual relationship that existed prior to the acquisition compared to current market conditions for similar collaborations. The settlement amount is reflected in other operating income and at the same time increases the consideration transferred.
The purchase price mainly pertained to an intangible asset for the product-specific radium-223 technology along with goodwill. The goodwill is mainly attributable to synergies in administration processes and infrastructure, including cost savings in the selling, research and development, and general administration functions.
On September 30, 2014, CropScience completed the acquisition of the seeds business of Granar s.a., headquartered in Encarnación, Paraguay. Granar specializes in the breeding, production and marketing of improved seed, especially soybean seed, that is adapted to the growing conditions in subtropical regions. It has a strong presence in Paraguay and Uruguay and an increasing presence in Brazil. Granar will continue to sell the seed for its own account for the 2014/15 sowing season. Bayer will take over marketing in 2015. Part of the agreed one-time payment of €15 million to acquire the business has been retained for disbursement over the next six years and is reflected at €2 million in the purchase price allocation.
On October 1, 2014, HealthCare completed the acquisition of the consumer care business of u.s. company Merck & Co., Inc., Whitehouse Station, New Jersey. The acquired business is primarily comprised of products in the cold, allergy, sinus & flu, dermatology (including sun care), foot health and gastrointestinal categories. The most important brands are ClaritinTM (allergy), CoppertoneTM (sun care), MiraLAXTM (gastrointestinal) and AfrinTM (cold), and – in North America and Latin America – Dr. Scholl’sTM (foot health). These products complement Bayer’s existing range of non-prescription medicines.
The acquisition significantly enhances Bayer’s over-the-counter (otc) business across multiple therapeutic categories and geographies. It gives Consumer Health the global number two position in a widely diversified sector and strong global positions in the five most important otc segments: dermatology, gastrointestinal, sinus & flu (cold, allergy, sinus, flu), dietary supplements and pain therapy.
In those countries where the consumer care business was acquired via an asset deal, Merck & Co., Inc. will continue the sales activities in its own name for a transitional period until the marketing authorizations are transferred to Bayer or Bayer can take over the business as distributor. During this period, the economic rewards and risks will already accrue to Bayer, and Bayer will receive the operating profit on the business from Merck. The transitional period has already ended for the majority of countries.
Where the business was acquired via a share deal, Bayer purchased 100% of the respective company’s shares.
Bayer paid a provisional purchase price of €11,177 million, less specific amounts that are being retained pending the receipt of antitrust approvals in the Republic of Korea and the transfer of further assets. The provisional purchase price allocation mainly comprises goodwill of €5,137 million and acquired brands valued at €5,362 million. Goodwill is largely based on cost synergies, especially in marketing and manufacturing, as well as on sales synergies resulting from the increased distribution capability and use of the global infrastructure. As expected, a goodwill amount of €3,761 million is tax-deductible. The acquired business recorded sales of €289 million in the Consumer Health segment and €7 million in the Pharmaceuticals segment since the acquisition date.
Upon closure of this acquisition, the strategic pharmaceutical collaboration agreed between Bayer and Merck & Co., Inc. in the field of soluble guanylate cyclase (sGC) modulation also came into effect. Bayer’s aim in entering into the global co-development and co-commercialization agreement, which has already received antitrust clearance, is to strengthen its development potential in the cardiovascular therapeutic area. In this connection, Merck & Co., Inc. is to make payments to Bayer of up to us$2.1 billion, comprising an up-front payment of us$1.0 billion (€793 million) and sales milestone payments of up to us$1.1 billion related to future joint activities with certain compounds including AdempasTM (riociguat) to treat pulmonary hypertension. The one-time payment of €793 million is to be recognized in sales and earnings over a period of 13.5 years. It includes an amount of €15 million recognized for the fourth quarter of 2014.
On November 1, 2014, Consumer Health acquired all the shares of Dihon Pharmaceutical Group Co. Ltd., Kunming, Yunnan, China. Dihon is a pharmaceutical company specializing in the manufacture and marketing of over-the-counter (otc) and herbal traditional Chinese medicine products. A provisional purchase price of €401 million was paid, based on a purchase price adjustment mechanism. The purchase price pertained mainly to acquired trademarks and goodwill. Sales of €3 million were recorded since the acquisition date.
On December 1, 2014, CropScience completed the acquisition of land management assets in the United States, Canada, Mexico, Australia and New Zealand from E. I. DuPont de Nemours and Company, United States. The acquisition provides CropScience with access to the growing forestry and range & pasture business segments in North America. Bayer paid a provisional purchase price of €120 million. A potential milestone payment for a successful registration was agreed upon in addition. This payment was included at €18 million in the purchase price allocation. The purchase price pertained mainly to intangible assets for product-related technologies and goodwill.
The purchase price allocations for Biagro Group, the consumer care business of Merck & Co., Inc., Dihon Pharmaceutical Group Co. Ltd. and the land management assets of E. I. DuPont de Nemours and Company currently remain incomplete pending compilation and review of the relevant financial information. It is therefore possible that changes will be made in the allocation of the purchase prices to the individual assets and liabilities.
The acquired businesses named above contributed €305 million to Bayer Group sales in 2014. Of this amount, €296 million pertained to the consumer care business acquired from Merck & Co., Inc. and €3 million to Dihon. Their combined ebit for 2014 amounted to minus €132 million, with the consumer care business acquired from Merck & Co., Inc. accounting for minus €57 million, Algeta for minus €52 million and Dihon for minus €22 million. Their total income after taxes since the respective dates of their first-time consolidation was minus €194 million, of which the consumer care business acquired from Merck & Co., Inc. accounted for minus €108 million, Algeta for minus €64 million and Dihon for minus €20 million. This includes the financing costs incurred since the respective acquisition dates.
If the above acquisitions had already been made as of January 1, 2014, the Bayer Group would have had total sales of €43,639 million in 2014, with €1,525 million pertaining to the consumer care business acquired from Merck & Co., Inc. and €112 million to Dihon. Group income after taxes would have amounted to €3,292 million, with the consumer care business acquired from Merck & Co., Inc. accounting for minus €214 million, Algeta for minus €86 million and Dihon for minus €46 million. This takes into account the effects of the hypothetical financing costs for the full year. The acquisition of the above-named businesses as of January 1, 2014, would have diminished earnings per share by €0.18.
The effects of these and other, smaller transactions made in 2014 – and of purchase price adjustments made in 2014 relating to previous years’/quarters’ transactions – on the Group’s assets and liabilities as of the respective acquisition or adjustment dates are shown in the table. Net of acquired cash and cash equivalents, the transactions resulted in the following cash outflow:
|Acquired Assets and Assumed Liabilities (Fair Values at the Respective Acquisition Dates) [Table 4.19]|
| ||2013||Of which Conceptus||2014||Of which Merck CC||Of which Algeta||Of which Dihon|
| ||€ million||€ million||€ million||€ million||€ million||€ million|
|Patents and technologies||400||338||1,762||–||1,758||–|
|Property, plant and equipment||55||14||235||146||23||66|
|Other noncurrent assets||1||1||9||–||–||9|
|Deferred tax assets||101||78||443||401||39||3|
|Other current assets||7||7||–||–||–||–|
|Cash and cash equivalents||74||58||105||3||90||12|
|Provisions for pensions and other post-employment benefits||(9)||–||–||–||–||–|
|Deferred tax liabilities||(273)||(160)||(535)||(2)||(485)||(46)|
|Changes in non-controlling interest||1||–||–||–||–||–|
|Acquired cash and cash equivalents||(74)||(58)||(105)||(3)||(90)||(12)|
|Settlement gain from pre-existing relationship||–||–||(35)||–||(35)||–|
|Liabilities for future payments ||(295)||–||(92)||(65)||–||–|
|Payments for previous years’ / quarters’ acquisitions||14||–||4||–||–||–|
|Purchase price adjustment||–||–||33||–||–||33|
|Net cash outflow for acquisitions||1,086||722||13,546||11,109||1,849||422|
Acquisitions in 2013
In 2013, the following acquisitions were accounted for in accordance with ifrs 3:
On January 2, 2013, Consumer Health wholly acquired the u.s. company Teva Animal Health Inc., St. Joseph, Missouri. The acquisition broadens Consumer Health’s range of anti-infective solutions for livestock and expands the existing product offering to include reproductive hormones. The transaction also adds dermatological products for companion animals, pet wellness products and nutraceuticals to the company’s portfolio. The parties agreed on a one-time payment of €38 million plus potential milestone payments, for which an amount of €45 million was included in the purchase price allocation. The milestone payments are mainly dependent on the achievement of various sales targets. The purchase price pertained mainly to product trademarks.
On January 18, 2013, CropScience acquired all the shares of PROPHYTA Biologischer Pflanzenschutz GmbH, a leading supplier of biological crop protection products headquartered in Malchow in the German state of Mecklenburg-Western Pomerania. In addition to research and development facilities, the acquisition also includes state-of-the-art production and formulation facilities in the city of Wismar. A purchase price of €25 million was agreed, pertaining mainly to technologies, research and development projects and goodwill. In addition, two related distribution rights were acquired for €5 million.
On March 15, 2013, CropScience wholly acquired soybean seed producer Wehrtec Tecnologia Agricola Ltda. and the soybean business of Agricola Wehrmann Ltda. Both companies are headquartered in Cristalina in the Brazilian state of Goiás. This transaction strengthens the soybean research and development activities of CropScience and contributes to the development of varieties tailored to the requirements of Brazilian soybean growers. A purchase price of €34 million was agreed along with potential milestone payments of up to €11 million. The purchase price pertained mainly to marketable crop plants, breeding material and goodwill.
In June 2013, Pharmaceuticals successfully completed the tender offer for the shares of Conceptus, Inc., currently headquartered in Milpitas, California, United States, and acquired 100% of the outstanding shares. Conceptus, Inc. has developed EssureTM, the only non-surgical permanent birth control method, which it markets in the u.s. and other countries. This acquisition enables Bayer to offer an even broader range of short-term, long-term and permanent contraceptive choices for women. A purchase price of €780 million was paid, pertaining mainly to technology and trademark rights. The goodwill remaining after the purchase price allocation is attributable to various factors, including significant cost savings in the marketing and sales functions along with general administration and infrastructure synergies.
In April 2013, the District Court of Berlin reached a decision in the court proceeding initiated by former minority stockholders of Bayer Pharma AG (formerly Bayer Schering Pharma AG) to review the adequacy of compensation payments made by Bayer in connection with the domination and profit and loss transfer agreement of 2006. The court decided that the compensation by Bayer at the time should be increased by about 40%. Bayer disagrees with this decision and has appealed. The potential supplementary payment represents a subsequent purchase price adjustment according to the March 31, 2004 version of ifrs 3 applicable at the acquisition date. Additional goodwill of €261 million, excluding interest, has been capitalized for this proceeding and for the parallel proceeding relating to the squeeze-out of the former minority stockholders.
On July 1, 2013, Consumer Health acquired all the shares of Steigerwald Arzneimittelwerk GmbH, Darmstadt, Germany. Steigerwald holds a strong position in the German phytopharmaceuticals market, which is focused on pharmacy-only herbal medicines. Its product portfolio includes IberogastTM for the treatment of functional gastrointestinal disorders and LaifTM for the treatment of mild to moderate depression. A purchase price of €218 million was agreed, pertaining mainly to product trademarks, technologies and goodwill.
On December 2, 2013, CropScience acquired fn Semillas s.a. and its parent company Holding Manager s.a., both headquartered in Buenos Aires, Argentina. fn Semillas specializes in the breeding, production and marketing of improved soybean seeds in Argentina. A purchase price of €25 million was agreed, pertaining mainly to commercial cultivars, germplasm and goodwill.