Bayer Faces Regulatory Scrutiny After Significant Share Price Drop

By Ludwig Burger

FRANKFURT (Reuters) -Germany's financial markets watchdog has started an initial probe to examine whether Bayer fairly disclosed plans to get shareholder approval for a potential capital increase, a regulatory source told Reuters on Tuesday.

Under the "routine" investigation that was triggered by the strong decline in Bayer's share price last Friday, watchdog BaFin is checking whether there are grounds for a wider investigation, the person familiar with the matter told Reuters.

The healthcare and agriculture group said in a statement on Friday it would seek shareholder approval to potentially increase shares outstanding by close to 35% over the next three years to cover possible costs of U.S. litigation.

The potential capital increase is worth up to 8.4 billion euros ($9.1 billion) based on the company's market value on Friday.

The stock plunged by as much as 10% in intraday trading on Friday with investors balking at the size of a cash call as dividends would spread across more shares. Reuters has reported that Bayer told several analysts in detail about the plans one day earlier.

The source said BaFin was looking both into any market-moving potential of the proposal for the annual investor meeting on April 25 and whether it was disclosed widely enough to reach all market participants.

When asked to comment, Bafin said it "regularly acts on unusual share price movements to establish whether there are indications of market manipulation, insider trading and/or violations of ad-hoc-disclosure rules". It would not comment specifically on Bayer.

A Bayer spokesperson pointed to previous comment saying that the proposal aligns with past shareholder authorization for a 35% capital increase that was in place until 2019. Bayer also had conditional capital of 10% at its disposal at the time, he added.

The spokesperson also pointed to a presentation that Chairman Norbert Winkeljohann gave in January, showing Bayer was considering a vote on raising new shares, without specifying the size.

Analysts had told Reuters last year that Bayer may have to ask shareholders for capital to shore up its finances even after the German group cut its dividends.

NOT FOR M&A

CEO Bill Anderson has scrambled to revive a share price burdened by costly U.S. litigation, a 2023 drug development setback, weak agriculture markets and over 32 billion euros in debt.

Bafin rules require listed companies to disseminate information with potential to move a share price "to as wide a public as possible on a non-discriminatory basis".

Bayer shares closed 6.4% lower on Friday and have since gained about 2%.

Analysts at some brokerages had expressed surprise at Friday's slump as they had cited Bayer executives as saying on Thursday that the size of the cash call was not out of the ordinary.

In its official statement on Friday, part of an invitation to shareholders to the annual meeting, Bayer said it would only resort to a rights issue "if it is absolutely necessary," and not use it for mergers or acquisitions.

($1 = 0.9158 euros)

(Additional reporting by Tom SimsEditing by Sabine Wollrab and Susan Fenton)