6.2 Business Combinations and Other Acquisitions

Acquisitions in 2015

The purchase prices for the acquisitions made in 2015, along with adjustments to purchase prices and purchase price allocations effected in 2015 relating to previous years’ transactions, totaled €8 million (2014: €13,741 million). The purchase prices of the acquired companies or businesses were settled mainly in cash. Adjustments to purchase price allocations and other adjustments reduced the total carrying amount of goodwill by €5 million (2014: €5,169 million increase). The changes in goodwill mainly resulted from the following transactions:

On March 2, 2015, Covestro successfully completed the acquisition of all the shares of Thermoplast Composite GmbH, Germany, a technology leader specializing in the production of thermoplastic fiber composites. The aim of the acquisition is to expand the range of polycarbonate materials for major industries to include composites made from continuous fiber-reinforced thermoplastics. A purchase price of €18 million was agreed. This includes a variable component of €4 million. The purchase price mainly pertained to patents and goodwill.

On July 1, 2015, CropScience completed the acquisition of all the shares of SeedWorks India Pvt. Ltd., based in Hyderabad, India. The company is specialized in the breeding, production and marketing of hybrid seeds of tomato, hot pepper, okra and gourds. It has research and seed processing locations in Bangalore and Hyderabad, respectively. The purchase of SeedWorks India is intended to further strengthen CropScience’s vegetable seed business in India. A purchase price of €80 million was agreed, subject to the usual purchase price adjustments. The purchase price mainly pertained to patents, research and development projects and goodwill.

As part of the acquisition of the consumer care business of Merck & Co., Inc., Whitehouse Station, New Jersey, United States, the production facilities at the Pointe-Claire site in Canada were acquired on July 1, 2015. A purchase price of €67 million was agreed.

The global purchase price allocation for the consumer care business acquired from Merck & Co., Inc. in 2014 was completed in September 2015.

This resulted in an adjustment to deferred tax assets due to temporary differences between the carrying amounts of intangible assets in the IFRS financial statements and those reported for tax purposes, along with a corresponding decline in goodwill in the statement of financial position. These deferred tax assets were retroactively restated to the date of acquisition pursuant to IFRS 3.45ff.

Change in Purchase Price Allocation

 

 

Dec. 31, 2014

 

 

Before change in purchase price allocation

 

Change in purchase price allocation

 

After change in purchase price allocation

 

 

€ million

 

€ million

 

€ million

Goodwill

 

16,168

 

(821)

 

15,347

Deferred taxes

 

2,981

 

821

 

3,802

In addition, the purchase price was reduced by €8 million in 2015 on the basis of agreed purchase price adjustment mechanisms.

The court proceedings initiated by former minority stockholders of Bayer Pharma AG (formerly Bayer Schering Pharma AG), Berlin, Germany, were settled in August 2015. The additional payment made as a result represents a subsequent purchase price adjustment according to the March 31, 2004, version of IFRS 3 in effect at the acquisition date. The goodwill was increased by €261 million in 2013 based on the status of the proceedings at that time. The settlements made it possible to finally determine the goodwill arising from the acquisition. It was therefore necessary to reduce the goodwill amount by €115 million in 2015 as a result of the proceedings. Both the increase and the reduction were recognized outside profit or loss against the liability resulting from the minority stockholders’ compensation claim.

The global purchase price allocation for Dihon Pharmaceutical Group Co. Ltd., Kunming, Yunnan, China, acquired in 2014, was completed in October 2015. The purchase price was reduced by €43 million in 2015 due to adjustment mechanisms.

The purchase price allocations for SeedWorks India Pvt. Ltd. and the production facilities at the Pointe-Claire site in Canada acquired from Merck & Co., Inc. 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 businesses of the above-mentioned acquired companies Thermoplast Composite GmbH and SeedWorks India Pvt. Ltd. contributed a total of €5 million to Bayer Group sales in 2015. EBIT Income after income taxes, plus income taxes, plus financial result; EBIT is not defined in the International Financial Reporting Standards. of these businesses in 2015 totaled minus €5 million. Their total income after taxes since the respective dates of their first-time consolidation was minus €5 million. This includes the financing costs incurred since the respective acquisition dates.

If the above acquisitions had already been made as of January 1, 2015, the Bayer Group would have had total sales of €46,334 million in 2015. Group income after taxes and earnings per share would not have been materially affected.

The effects of these transactions and other, smaller transactions made in 2015 – along with adjustments to purchase prices and purchase price allocations made in 2015 relating to previous years’ 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)

 

 

2014

Of which Merck CC

Of which Dihon

 

2015

Of which Merck CC

Of which Merck Canada

Of which Dihon

 

 

€ million

€ million

€ million

 

€ million

€ million

€ million

€ million

2014 figures restated

Goodwill

 

5,169

4,316

96

 

(5)

49

3

1

Patents and technologies

 

1,762

 

39

Trademarks

 

5,672

5,362

295

 

53

35

18

Production rights

 

71

 

R&D projects

 

16

 

26

Other rights

 

30

6

 

(20)

(20)

Property, plant and equipment

 

235

146

66

 

36

(23)

61

(2)

Other noncurrent assets

 

9

9

 

Deferred tax assets

 

1,264

1,222

3

 

(5)

(5)

Inventories

 

331

295

18

 

(44)

(46)

4

(8)

Receivables

 

222

106

70

 

57

43

3

(4)

Other current assets

 

 

Cash and cash equivalents

 

105

3

12

 

2

Provisions for pensions and other post-employment benefits

 

 

Other provisions

 

(105)

(101)

(3)

 

(85)

(50)

(3)

(19)

Financial liabilities

 

(213)

(20)

(65)

 

Other liabilities

 

(292)

(150)

(60)

 

(25)

7

(1)

(27)

Deferred tax liabilities

 

(535)

(2)

(46)

 

(21)

2

(2)

Net assets

 

13,741

11,177

401

 

8

(8)

67

(43)

Changes in noncontrolling interest

 

 

Purchase price

 

13,741

11,177

401

 

8

(8)

67

(43)

Acquired cash and cash equivalents

 

(105)

(3)

(12)

 

(2)

Advance purchase price payments made in prior years

 

 

(11)

(11)

Settlement gain from pre-existing relationship

 

(35)

 

111

Liabilities for future payments

 

(92)

(65)

 

Payments for previous years’ acquisitions

 

4

 

65

63

Purchase price adjustment

 

33

33

 

5

5

Net cash outflow for acquisitions

 

13,546

11,109

422

 

176

55

56

(38)

On December 19, 2015, Bayer entered into an agreement to create a joint venture with CRISPR Therapeutics AG, Basel, Switzerland. The joint venture is to be established in the first quarter of 2016. Its purpose is the development and commercialization of new methods to treat blood disorders, blindness and heart diseases. As of December 31, 2015, Bayer had capital contribution commitments of US$370 million to CRISPR Therapeutics AG and the joint venture yet to be established. These commitments mature on December 31, 2020, at the latest.

Acquisitions in 2014

In 2014, the following acquisitions were accounted for in accordance with IFRS 3:

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 helps CropScience to build on the success of its soybean seed business in Latin America. 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.

In March 2014, HealthCare 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 NOK 362 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 NOK 362 per share.

Algeta creates 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 began collaborating in 2009 to develop and commercialize radium‑223 dichloride, which was approved in the United States in May 2013 under the tradename Xofigo™. The acquisition strengthened 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 represented the value of the advantage enjoyed by the acquirer from the contractual relationship that existed prior to the acquisition compared to market conditions for similar collaborations. The settlement amount was reflected in other operating income and at the same time increased 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 continued to sell the seed for its own account for the 2014 / 15 sowing season. Bayer took 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 Claritin™ (allergy), Coppertone™ (sun care), Mira™ (gastrointestinal) and Afrin™ (cold), and – in North America and Latin America – Dr. Scholl’s™ (foot health). These products complement Bayer’s existing range of nonprescription medicines.

In those countries where the consumer care business was acquired via an asset deal, Merck & Co., Inc. continued the sales activities in its own name for a transitional period until the marketing authorizations had been transferred to Bayer or Bayer was able to take over the business as distributor. During this period, the economic rewards and risks already accrued to Bayer, and Bayer received the operating profit on the business from Merck. The transitional period has ended.

Where the business was acquired via a share deal, Bayer purchased 100% of the respective company’s shares.

In 2014, Bayer paid a provisional purchase price of €11,177 million, less specific amounts that were retained pending the receipt of antitrust approvals in the Republic of Korea and the transfer of further assets. The provisional purchase price allocation mainly comprised goodwill of €5,137 million and acquired trademarks valued at €5,362 million. The goodwill amount was retroactively adjusted to €4,316 million as of the acquisition date. It 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 €2,084 million is tax-deductible.

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) made in 2014 and sales milestone payments of up to US$1.1 billion related to future joint activities with certain compounds, including Adempas™ (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 as the obligations are satisfied.

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 At Bayer, OTC (over-the-counter) medicines are those obtainable without a prescription. In finance, OTC represents trade between financial market participants outside of an organized exchange. OTC transactions are nevertheless subject to securities trading laws. ) and herbal traditional Chinese medicine products. A provisional purchase price of €401 million was accounted for in 2014. This was based on a purchase price adjustment mechanism. The purchase price mainly pertained to acquired trademarks and goodwill.

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 in 2014. 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 mainly pertained to intangible assets for product-related technologies and goodwill.