Another tough decision for Bayer as it plans to slash dividend by 95% to reduce debt

Since he took over as CEO at Bayer nine months ago, Bill Anderson had had to make tough decisions to try to get the floundering conglomerate back on track.

Bayer revealed one of them on Monday, saying it plans to slash its investor dividends to help reduce the company’s debt. Over three years, Bayer intends to pay out the legal minimum. For 2023, that comes to €0.11 per share compared to the €2.40 the company paid out per share in 2022.

Bayer management will present the dividend proposal for a shareholder vote at the company’s annual stockholders’ meeting on April 26. High interest rates and a “challenging free cash flow situation,” are contributing factors in making the move, the company said in its release.

“One of our top priorities is reducing debt and increasing flexibility,” Anderson said in the statement. “Our amended dividend policy, which considered investor input and was not taken lightly, will help us do so.”

The decision comes as Bayer pours millions into defending against claims in the United States that its weedkiller Roundup causes cancer. The herbicide was acquired in the company’s disastrous $63 billion buyout of U.S. crop science company Monsanto—a deal that was consummated in 2018 as initial Roundup lawsuits were advancing.

At the end of the third quarter of last year, Bayer reported (PDF) debt of €38.7 billion ($42 billion), which was up 8% year over year but down €900 million ($974 million) from the previous quarter. The company will reveal fourth-quarter earnings on March 5.

Analysts at ODDO BHF believe that slashing the dividend is a necessary measure “even if dividend-oriented investors are deterred.”

“Cut in dividends will just slightly improve Bayer’s net leverage,” ODDO analysts added in a note to investors. “Further steps will be necessary to achieve sufficient flexibility again.”

Since moving into the CEO job, Anderson has had to clean up the mess left by his predecessor Werner Baumann, who served seven stormy years fending off investor unrest after the Monsanto deal. In November, Anderson said that a “radical realignment” of the company was underway, with massive workforce reductions on tap.

Last month, Anderson dubbed his new operating model “Dynamic Shared Ownership,” which is designed to eliminate bureaucracy and streamline decision-making.

Anderson also has said he is considering following an industry trend in separating Bayer’s pharma business from its two other less profitable sectors—crop science and consumer health.