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Bayer on Friday announced a far-reaching strategy review that will leave the German chemicals and pharmaceuticals hybrid focused on its core pharmaceuticals and agrichemicals activities following the planned flotation of parts of its chemicals and polymer businesses by early 2005.

“In future it will concentrate resources primarily on developing and expanding its research-intensive activities in the HealthCare and CropScience businesses and on the investment-intensive MaterialScience business,” the group said.

Bayer is planning to combine its chemicals unit with parts of the polymers activities, to form a new company with sales of about $6.4 billion and 20,000 employees.

The aim is to list this new company on the stock market by early 2005, Bayer said.

The pharmaceuticals business is to be retained on a stand-alone basis within the healthcare unit, following a fruitless search for a partner. It will be positioned as a mid-size European pharmaceuticals business.

Bayer’s decision signals the end of the group’s traditional diversified four-pillar structure, which had come under intense pressure following the withdrawal in 2001 of Lipobay, a key anti-cholesterol drug.

The Lipobay crisis triggered a decision to split Bayer’s operations into four separate legal entities, a move that gave them greater flexibility to engage in partnerships, notably in the pharmaceuticals and the chemicals business.

Bayer’s more cyclical polymers and chemicals activities, meanwhile, have also been suffering from weak demand triggered by slow global economic growth. Chemicals in particular has been considered one of the main weak spots in Bayer’s portfolio, both in terms of profitability and market positioning.

Parting with the units will generate investment resources for pharmaceuticals and also give Bayer the leeway to boost its over-the-counter activities, home to Bayer’s most famous product, Aspirin, through small acquisitions or licensing in products, analysts say.

One analyst said: “Deconsolidating chemicals and polymers is positive. It leaves Bayer basically with agrochemicals, where it is already well positioned, and healthcare, where it remains strong in over the counter medicines despite the problems in the pharmaceuticals division.”.

The still-fragile state of the markets, however, means the conditions for an IPO remain highly challenging at present, observers said.

In choosing to narrow its focus, Bayer echoes the approach taken by several other European chemicals-and-pharmaceuticals conglomerates in recent years.

© The Financial Times Ltd 2013. "FT" and "Financial Times" are trademarks of the Financial Times.

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