Bayer A.G. History

Company Perspectives:

Our aim is to be the world's leading integrated chemical and pharmaceutical company, with core competencies in health care, agriculture, plastics, and specialty chemicals. Our aim is that our products should benefit humankind. We are committed to the principals of the international Responsible Care initiative in our research and development, manufacturing, marketing, and information policy. Key Dates:

Key Dates:

1863:

Friedrich Bayer establishes a dyestuffs factory.

1888:

The pharmaceutical department of the firm is created.

1899:

The Aspirin trademark is registered.

1912:

Company headquarters are moved to Leverkusen.

1925:

Merger of the major German chemical companies results in the Interessen Gemeinschaft Farbenwerke, or I.G. Farben.

1951:

Following postwar breakup, I.G. Farben is reformed as Farbenfabriken Bayer A.G.

1972:

The firm officially adopts the name Bayer A.G.

1978:

Miles Laboratories is acquired.

1982:

The firm restructures, creating a third tier below the management board.

1993:

Pharmaceutical sales in Germany fall by 20 percent as a result of government efforts to cut expenditures on pharmaceuticals.

1994:

Bayer purchases Sterling Drug for $1 billion.

1997:

Company begins restructuring its chemical operations.

1998:

Bayer purchases Chiron Diagnostics, becoming one of the world's largest diagnostic system suppliers, and initiates plans to spin-off its Agfa subsidiary.

1999:

Company celebrates the centennial of Aspirin.

2001:

A $1.64 billion alliance with CuraGen Corporation is forged.

Company History:

Comprised of over 350 companies, Bayer A.G. operates as one of the world's largest chemical manufacturers. Its four main business segments include Health Care, Agricultural, Polymers, and Chemicals. Within the Health Care division are the Pharmaceutical, Consumer Care, and Diagnostics business groups. The Agriculture division operates the Crop Protection and Animal Health groups. The Polymers division is made up of five segments including Plastics, Rubber, Polyurethanes, Coatings, and Colorants, and also includes fiber subsidiary Bayer Faser GmbH. The Chemicals division operates the Basic and Fine Chemicals unit, Specialty Products, and subsidiaries Haarmann & Reimer, H.C. Stark, and Wolff Walsrode. Bayer has operations in nearly every country in the world with a majority of its business in Europe, the Far East, and North America. The firm is among industry leaders in research and development, spending nearly 12 percent of its revenues on this segment.

1860s Origins

Bayer traces its history to the 1863 founding of a dyestuffs factory in Barmen, Germany, a region that later became part of the industrial city of Wuppertal on the Rhine river in West Germany. The factory was set up by Friedrich Bayer and Johan Friedrich Weskott, a master dyer. Only two years later, the men commenced global operations of sorts, acquiring a share in a U.S. coal tar dye factory and exporting the product. Subsequent expansion included a new factory in Moscow. By 1881, the growing company was being run by heirs of Bayer and Weskott, and they reorganized the concern as Farbenfabriken vorm. Friedr. Bayer & Co., a joint-stock company. A plant in northern France was established in 1883 and others throughout the homeland of Germany followed.

In 1884, chemist Carl Duisberg joined the company; he would oversee a period of remarkable innovation at Bayer. Expanding beyond the development and manufacture of dyestuffs, the company established a pharmaceutical department in 1888. Although Bayer became a world leader in dyestuffs, its place in the history of early 20th-century chemistry was secured by its contributions to pharmacology. Specifically, at the turn of the century a Bayer chemist, Felix Hoffman, became the first to synthesize acetylsalicylic acid into a usable form. The result, aspirin, was patented in 1899 and went on to become the most popular pain reliever worldwide.

Moreover, in 1908, the basic compound for sulfa drugs was synthesized in Bayer laboratories. The immediate application of the compound was a reddish orange dye, which was soon discovered to be effective against pneumonia, a major health hazard of the early 20th century. Despite the lives that could have been saved if the sulfa drug had been released throughout Europe immediately, Bayer held onto the formula. Frustrated French chemists were forced to duplicate the drug in their own laboratories in order to introduce it to the market. In 1912, Bayer moved its headquarters to Leverkusan, where they would remain into the 21st century.

Unifying Under the German Government: 1920s--40s

Bayer chemists regularly tested dye compounds for their effectiveness against bacteria. In 1921, they discovered a cure for African sleeping sickness, an infectious disease that had made parts of Africa uninhabitable. Aware of the political as well as pharmacological implications of its compound, Bayer offered the British the formula to the drug, known as Germanin, in exchange for African colonies. Britain declined the offer. Non-cooperation continued as during World War I Bayer deprived the Allies of drugs and anesthetics whenever possible. In 1925, Duisberg, who had become president of Bayer, organized a merger of the major German chemical companies into a single entity known as the Interessen Gemeinschaft Farbenwerke, or I.G. Farben. From their inception, the German chemical companies had been organized into a series of progressively more powerful trusts, but with I.G. Farben, the last vestiges of competition in the chemical industry were extinguished. Other industries, such as steel, were undergoing a similar process in Germany.

In addition to setting quotas and pooling profits, I.G. Farben pursued political aims, working to prevent any possibility of a leftist uprising that would establish worker control over industry. In order to prevent such an uprising, I.G. Farben financed right-wing politicians and attempted to influence domestic policy in secret meetings with German leaders. The trust also exercised its influence abroad, with Bayer and other companies contributing an estimated ten million marks to Nazi Party associations in other countries. Money was also designated for propaganda. In 1938, Bayer forced a U.S. affiliate, Sterling Drug, to write its advertising contracts in such a way that they would be immediately canceled if the publication in which the advertising appeared presented Germany in an unflattering light.

Bayer and I.G. Farben profited handsomely from their support of Adolf Hitler. By 1942, I.G. Farben was making a yearly profit of 800 million marks more than its entire combined capitalization in 1925, the year the cartel was formalized. Not only was I.G. Farben given possession of chemical companies in foreign lands (it had control of Czechoslovakian dye works a week after the Nazi invasion), but the captured lands provided its factories in Germany with slave labor. In order to take full advantage of slave labor, I.G. Farben plants were built next to Maidanek and Auschwitz.

Many of the I.G. Farben plants contracted during the war were built in remote areas, often with camouflage. Thus, these factories did not sustain much physical damage, in contrast to the many German cities that were completely destroyed. By I.G. Farben's account, only 15 percent of its productive capacity was destroyed by the Allies. The worst damage was sustained by the extensive BASF works and factories in eastern Germany, which were destroyed by I.G. Farben employees so that the buildings would not fall under Russian control.

Immediately after the war many members of I.G. Farben's Vorstand, or board of directors, were arrested and indicted for war crimes. I.G. Farben executives were in the habit of keeping copious records, not only of meetings and phone calls, but also of their private thoughts on I.G. Farben's dealings with the government; as a result, there was extensive written evidence incriminating the Vorstand. Despite this evidence and testimony from concentration camp survivors, the Vorstand was dealt with leniently by the judges at Nuremberg. Journalists covering the 1947 proceedings attributed the light sentences, none of which was longer than four years, to the fact that all the sentences handed down at the end of the trials tended to be less severe, as well as to the judges' unwillingness to expand their definition of war criminals to include businessmen.

Bayer Independence from I.G Farben: 1950s

I.G. Farben plants operated under Allied supervision from 1947 until 1951, when the organization was dismantled in the interests of 'peace and democracy.' The division of I.G. Farben generally adhered to the boundaries of the original companies; for example, the works at Leverkusen and Elberfield reverted to Bayer. Bayer also received the AGFA photographic works.

In the first five years of its independence from I.G. Farben, Bayer concentrated on replacing outdated equipment and on supplying Germany's need for chemicals. By 1957, Bayer had developed new insecticides and fibers, as well as new raw and plastic finished materials. Bayer's resiliency in recovering from the war impressed U.S. investors, who held 12 percent of the company's stock.

During the late 1950s, Bayer began to expand overseas and by 1962 was manufacturing chemicals in eight countries, including India and Pakistan. Most of the work done abroad was 'final stage processing,' whereby active ingredients were sent from Germany and mixed with locally obtained inert ingredients that would be expensive to transport overseas. Final stage processing arrangements allowed Bayer to manufacture products, mostly farm chemicals and drugs, in developing countries more profitably.

High tariffs in the United States and high labor costs in Germany also provided incentives for Bayer to acquire production facilities in America. In 1954, Bayer and Monsanto formed a chemical company known as Mobay to manufacture engineering plastics and dyestuffs. Because Bayer did not have sufficient funds to build a plant in the United States, it provided technical expertise while Monsanto provided financial resources. Although Bayer had part and eventually full interest in Mobay, its promotional material was never allowed to mention Bayer's name, because the American rights to the Bayer trademark had been given to Sterling Drug after World War I in retaliation for Bayer's suppression of U.S. dye companies during the early years of the 20th century.

Realizing that West Germany offered only limited opportunity for growth, Bayer worked to develop products for the U.S. chemical market, emphasizing value-added products for which Bayer held the patents, including pesticides, polyurethane, dye stuffs, and engineering plastics. Technical innovations that allowed Bayer to penetrate the U.S. market included the urethane compound that forms the familiar 'crust' on urethane used in auto dashboards; before Bayer's discovery, the porous quality of urethane limited its usefulness. During this period Bayer consolidated and slowly expanded its international operations, especially in the United States. Overall, the 1960s was a good decade for Bayer as domestic production increased 350 percent while foreign production increased 700 percent.

U.S. Expansion in the 1970s

In the early 1970s, Bayer began to increase its already substantial investment in the United States. Between 1973 and 1977, its investment rose from $300 to $500 million, which went to expand production capacity and develop its product line, which included dyes, drugs, plastics, and synthetic rubber. Although all patents held by Bayer before 1952 had been taken away as war retribution, by the mid-1970s Bayer had expanded its product line to include 6,000 items, many of them patented by the company.

Bayer increased its capacity by expanding existing plants and purchasing new ones. In 1974, Bayer purchased Cutter Laboratories, a manufacturer of nutritional products and ethical drugs, which had financial difficulties until 1977. Later, Allied Chemical sold its organic pigments division to Bayer. In 1977, a U.S. antitrust suit forced Bayer to buy Monsanto's share of Mobay, which generated $540 million in sales. The following year Bayer purchased Miles Laboratories, manufacturers of Alka-Seltzer antacid and Flintstones vitamins.

Bayer had strong incentives to expand its U.S. operations. Due to the prevalence of strikes in Europe, which interrupted product shipments, U.S. retailers were wary of contracting with European suppliers who did not have large stockpiles of their products in the United States. Lower energy and labor costs made the United States even more attractive to Bayer. U.S. holdings also cushioned the negative effects of the strong deutsche mark on imports into the United States. By the mid-1970s, 65 percent of Bayer's sales came from outside of Germany, making it critical that Bayer protect itself against currency fluctuations.

Restructuring and Cost-Cutting During the 1980s and 1990s

In the early 1980s, Bayer's worldwide holdings had expanded such that its corporate structure needed streamlining. German law mandated a two-tier structure for corporations, with a management board similar in function to the board of directors of a U.S. corporation reporting to a supervisory board made up of major stockholders, labor representatives, and outside interests. This board served in a supervisory capacity, approved major decisions, and appointed board members. In 1982, Bayer created a third tier below the management board. This board consisted of senior managers and corporate staff members who took over management of specific product lines that had previously been the responsibility of board members.

The late 1980s and early 1990s were a time of stagnant revenues, cost containment efforts, and an increasing emphasis on non-European markets for Bayer. From 1988 through 1993, sales fluctuated between DM 40 billion and DM 43.3 billion, while profits leveled off. Business was affected by a serious recession in Western Europe, political changes in Eastern Europe, a cyclical downturn in the chemical industry, and government reforms in health care and agriculture. In 1993, Bayer's sales of pharmaceuticals in Germany fell 20 percent as a result of government efforts to cut expenditures on pharmaceuticals; doctors, facing reduced drug budgets, began to prescribe more generic drugs in place of the expensive, proprietary drugs developed by Bayer. Agrochemical sales were dampened by the Common Agricultural Policy reform effort that reduced the amount of farmland in Europe and the amount of chemicals used in farming.

Part of Bayer's response to this crisis was to drastically cut costs--$1.6 billion in expenditures were eliminated between 1991 and early 1995. Its worldwide workforce was slashed by 14 percent, and unprofitable operations were shed, including its polyphenylene sulfide unit. In 1992, Bayer integrated all of its U.S. holdings under its Miles Inc. subsidiary, based in Pittsburgh. The following year, under the leadership of a new chairman of the board of management, Manfred Schneider, Bayer committed to enlarging its Asian and North American operations in order to reduce its dependence on the European market. In Asia, Bayer focused its expansion efforts on joint ventures with firms in Japan, Hong Kong, Taiwan, and China. In 1993, Bayer signed an agreement with the Eisai Company of Japan to sell nonprescription drugs, and the following year several joint ventures were signed in China to set up Bayer and Agfa Gevaert production operations there.

In North America, Bayer began a drive not only to bolster its operations but also to fully regain the use of its name. After securing the rights to the Bayer name in the United States after World War I, Sterling Drugs went on to establish Bayer aspirin as a household name. In 1986, for $25 million, Bayer secured from Sterling partial rights to use its name in North America outside the pharmaceutical area. In 1994, Eastman Kodak sold Sterling to the British firm SmithKline Beecham PLC, and only a few weeks later SmithKline sold the North American side of Sterling to Bayer for $1 billion. With the purchase, Bayer not only won back the full rights to its name in North America, but also gained Sterling's $366 million North American over-the-counter (OTC) drug business. In addition to the Bayer aspirin line, the Sterling acquisition included such familiar products as Midol analgesics and NeoSynephrine decongestant. The acquisition pushed Bayer into the top five producers of OTC products worldwide.

After the purchase of Sterling, Bayer changed the name of its Miles Inc. subsidiary to Bayer Corporation. The OTC operations of Miles and Sterling were then integrated into a single Bayer Corporation consumer care division. Another strategic step in North America, and one that brought added diversification to Bayer's health care operations, was the 1994 purchase of a 29.3 percent stake in Denver-based Schein Pharmaceutical Inc., a maker of generic drugs. Bayer planned to expand Schein's operations outside North America.

Bayer also beefed up its research and development (R & D) budget, particularly in health care. Its drug research efforts were already beginning to pay off in the mid-1990s, especially in North America. Bayer's anti-infective drug Ciprobay had generated $1.3 billion in sales by early 1995, with the firm's patent in effect until 2002. In 1993, Bayer introduced a hemophilia treatment called Kogenate, the company's first genetically engineered drug. Other major drugs under development included a cholesterol reducer and treatments for asthma and Alzheimer's disease.

As a result of its increasing diversification within its core businesses and its aggressive program of worldwide expansion, Bayer operated as a leading chemical and pharmaceutical company in the mid-1990s. Net income increased by 20 percent to DM 2.4 billion in 1995, the highest level the company had recorded in its history. The company's chemical business played a large role in securing such an increase. However, results for the firm's healthcare interests and its Agfa group were dim in comparison due to exchange rates, a decrease in demand, and increased pressure on prices.

The firm once again looked to restructure and control costs in order to maintain income levels. The financial success in 1995 was overshadowed by 3,800 job cuts and additional cuts were expected into the late 1990s. Underperforming assets and non-core assets were divested including the dental care and consumer businesses. As the German economy faltered, Bayer management continued to focus on cost-efficient operations. Chairman Schneider stated in an April 1996 Chemistry and Industry article, 'if our German operations are to remain competitive, we must at least stop costs rising any further and actually start to reduce them again.' In order to do just that, the firm's bulk chemical plants in Leverkusen, Dormagen, and Uerdingen, underwent a major restructuring in 1997 after recording a 79 percent decline in operating profits.

At the same time, Bayer looked for strategic alliances to secure top positions in niches of the industry. In March 1996, the firm acquired the styrenics business of Monsanto Co. for $580 million. The deal doubled Bayer's North American plastics operations and secured its position as the second largest producer of engineering resins just behind GE Plastics. The firm also pledged to increase Asian business, which in 1996 secured 14 percent of company sales. Moreover, in September 1998, Bayer acquired U.S.-based Chiron Corp's Diagnostics business for DM 1.9 billion. The deal gave Bayer the number one spot in the diagnostic systems industry and also increased its international customer base as well as its research operations.

Bayer teamed with Millennium Pharmaceuticals Inc., a genome research company, to form a discovery alliance related to drug testing for cardiovascular disease, cancer, osteoporosis, liver fibrosis, and viral infections. Bayer also teamed up with General Electric to form GE Bayer Silicones GmbH & Co. KG, a unit dedicated to developing the silicon business. The firm also partnered with Japanese firm Fujisawa to prevent worms in pets and livestock, and also began work in China on crop protection and household insecticides.

Aspirin celebrated its centennial in March 1999. Bayer celebrated by tenting its corporate headquarters in an Aspirin box while 50,000 spectators looked on. Amid the festivities, the firm continued to strengthen its core businesses and spun off 70 million shares of its Agfa-Gevaert business in order to raise capital for other operations. At the same time, the firm continued to face increased competition, consolidation in the pharmaceutical industry, and difficult market conditions in the agrochemical field as well as in the chemicals segment. Strategic alliances remained a focus, and deals for the year included the purchase of the polycarbonate and polyester sheet business of Dutch-based DSM; the acquisition of Laserlite, an Australian plastic sheeting company; and Home & Garden Ltd, a plant protection and fertilizer manufacturer. Having spent the 1990s restructuring and selling off non core assets, Bayer's key business segments included Health Care, Agriculture, Polymers, and Chemicals at the close of the 20th century.

Alliances for the New Millennium

Bayer entered the new millennium on solid ground, despite weakening market conditions in several of its business segments. The company's strategy of strengthening its portfolio continued, and in April 2000 the firm acquired the polyols business of U.S.-based Lyondell Chemical Company for $2.5 billion. Bayer stood as the world's largest polyurethane raw materials supplier after the deal.

Bayer also forged several key partnerships that were related to the firm's drive for research and development as well as product innovation. A deal with Incyte Pharmaceuticals gave Bayer access to the U.S.-based company's database of over 480 patented human genes that could be used for research. The company also partnered with LION Bioscience AG to do research in the life sciences including pharmaceuticals and diagnostics. In February 2001, Bayer teamed up with CuraGen Corporation to research, develop, and market pharmaceuticals related to metabolic disease. Bayer received the 'President's Service Award' and the 'Presidential Green Chemistry Challenge Award' in 2000 due to its long-standing commitment to research and development.

Though overall sales for 2000 were impressive, the Chemicals segment of the business continued to struggle, and restructuring continued. Bayer's focus on the future included expanding its research and technology operations, as well as continuing to shed unprofitable business. For example, in May 2001 the company ceded its 50 percent interest in EC Erdoelchemie to BP Energy in a deal valued at $500 million. During this time, Tweedy Browne & Co., a large shareholder, called for Bayer to split into three segments: chemicals, pharmaceuticals, and agchems. In response to the proposed split, chairman Schneider stated in a Chemical Week article, 'we are sure such a move would not increase Bayer's value in the long term. Our current structure facilitates the running of the business, enables us to capitalize on existing synergies, and gives us scope to respond swiftly should acquisition opportunities arise in the life science sector.' Indeed, shareholders voted down the proposal overwhelmingly, trusting management and the current structure to see the company to ever more profitable decades ahead.

Principal Subsidiaries: Bayer Vital GmbH & Co. KG; Wolff Walsrode AG; Haarmann & Reimer GmbH; Bayer Faser GmbH; Rhein Chemie Rheinau GmbH; Bayer Corporation (U.S.); Bayer Inc. (Canada); Bayer Antwerpen N.V. (Belgium); Bayer Rubber N.V. (Belgium); Bayer A/S (Denmark); Bayer plc (U.K.); Bayer S.p.A. (Italy); Bayer International S.A. (Switzerland); Bayer Hispania, S.A. (Spain); Quimica Farmaceutica Bayer, S.A. (Spain); Bayer de Mexico, S.A. de C.V.; Bayer Ltd. (Japan); Bayer (Singapore) Pte. Ltd.; Bayer (Proprietary) Ltd. (South Africa); DyStar Group (50%); H.C. Starck GmbH & Co KG (99.9%); PolymerLatex GmbH & Co. KG (50%).

Principal Operating Units: Health Care; Chemicals; Polymers; Agriculture.

Principal Competitors: E.I. du Pont de Nemours and Co.; BASF A.G.; Novartis A.G.

Further Reading:

• 'Bayer AG Announces US$100 Million Alliance in Life Science Research,' PR Newswire, June 24, 1999.
• 'Bayer Bids to Be No. 1 in Polycarbonate,' Plastics Technology, February 2000, p. 69.
• 'Bayer Buys Lyondell's Global Polyols for US$ 2.5 Billion,' Polymers Paint Colour Journal, December 1999, p. 8.
• 'Bayer Continues Restructuring Plans,' Chemical Week, January 13, 1999, p. 6.
• 'Bayer, CuraGen Alliance,' Chemical Market Reporter, February 26, 2001, p. 7.
• 'Bayer Playing Catch-Up,' Med Ad News, March 2001.
• 'Bayer Prepares Bulk Chemicals Restructuring,' Chemical Market Reporter, March 24, 1997, p. 8.
• 'Bayer Regains U.S. Rights to Name with OTC Buy,' Chemical Marketing Reporter, September 19, 1994, p. 3.
• 'Bayer to Sell Agfa-Gevaert Stock,' Chemical Market Reporter, May 24, 1999, p. 7.
• Brierley, David, 'Bayer Finds Breaking Up Is Hard to Do,' European, August 7, 1997, p. 24.
• Hasell, Nick, 'The View from Bayer,' Management Today, November 1993, pp. 60--64.
• Hayes, Peter, Industry and Ideology: IG Farben in the Nazi Era, New York: Cambridge University Press, 1987, 411 p.
• Hume Claudia, 'Bayer Rejects Call for Split,' Chemical Week, March 21, 2001, p. 7.
• Jackson, Debbie, and Emma Chynoweth, 'Recession Reaches German Majors: Turnaround in 1991 Is Still Elusive,' Chemical Week, April 15, 1992, pp. 22--23.
• Jackson, Debbie, 'Bayer: Deals in the Pipeline as Decline Continues,' Chemical Week, December 8, 1993, p. 18.
• ------, 'Bayer Mobilizes Resources to Counter Crisis at Home,' Chemical Week, April 21, 1993, pp. 24--31.
• ------, 'Bayer under Pressure,' Chemical Week, March 24, 1993, p. 19.
• 'Job Losses Follow Best Year Ever,' Chemistry and Industry, April 1, 1996, p. 237.
• Keenan, Tim, 'Bayer Pumps Up Plastics Division,' Ward's Auto World, March 1996, p. 133.
• Kuntz, Mary, 'Extra-Strength Aspiration: Can Bayer's New Owners Expand the Market?,' Business Week, May 1, 1995, p. 46.
• Mann, Charles C., and Mark L. Plummer, The Aspirin Wars: Money, Medicine, and 100 Years of Rampant Competition, New York: Alfred A. Knopf, 1991, 420 p.
• Miller, Karen Lowry, and Joseph Weber, 'Bayer Group Eyes a Lost Continent: America,' Business Week International Editions, June 6, 1994.
• Reier, Sharon, 'Elephant Walk,' Financial World, February 28, 1995, pp. 38--39.
• Rosendahl, Iris, 'Out Miles, in Bayer,' Drug Topics, February 6, 1995, p. 54.

Source: International Directory of Company Histories, Vol. 41. St. James Press, 2001.

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