Bayer A.G.

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Bayer A.G.

5090 Leverkusen
Bayerwerk
Federal Republic of Germany
0214-301

Public Company
Incorporated: in 1952 as Farbenfabriken Bayer A.G.
Employees: 63,954
Sales: DM 36.441 billion (US$ 18.765 billion)
Market value: DM 18.715 billion (US$ 9.637 billion)
Stock Index: Munich Bonn Hamburg Frankfurt Paris Luxembourg Vienna Zurich Basle Geneva London
Brussels Antwerp

Bayer, along with BASF and Hoechst, is heir to the German chemical cartel known as the IG Farben, which the Allies disbanded in 1952. Rising above its past, Bayer has again assumed a commanding position in the world chemical industry. The company now makes polyurethane, organic and inorganic chemicals, synthetic rubber and agrichemicals, as well as its original products which include dyes and pharmaceuticals.

Bayer A.G. was founded in Elberfield, West Germany by Friedrich Bayer. Bayer’s first product of note was a synthetic magenta dye. The works at Elberfield, built in 1865, were followed by additional production facilities at Leverkausen (1891) Uerdingen (1907) and Dormagen (1913). The man who presided over the expansion of Bayer, Carl Duisberg, also organized the IG Farben.

Although Bayer was a world leader in dyestuffs, its place in the history of early 20th century chemistry was secured by its contributions to pharmacology. A Bayer chemist, Felix Hoffman, discovered aspirin at the turn of the century. In 1908 the basic compound for sulfa drugs was synthesized in Bayer laboratories. The immediate application of the compound was a reddish orange dye, but it was soon discovered to be effective against pneumonia, a major health hazard in the early years of this century. Despite the lives that could have been saved if the sulfa drug had been released immediately, Bayer held on to the formula. Frustrated French chemists were forced to duplicate the drug in their own laboratories in order to introduce it to the market.

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 the 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. This led to the policy during World War I where Bayer deprived the Allies of drugs and anesthetics whenever possible.

In 1925 the president of Bayer, Carl Duisberg, organized a merger of the major German chemical companies into a single entity known as the Interessen Gemeinschaft Farbenwerke, or I.G. Farben. Almost from its inception the German chemical companies had been organized into a series of progressively more powerful trusts, but with the IG Farben the last vestiges of competition in the chemical industry were extinguished. Other industries, such as steel, were undergoing a similar process in Germany.

The IG Farben set quotas and pooled profits. But this large trust was more than an economic institution—it was a political organization. The chief political concern of the I.G. Farben was the possibility of a leftist uprising that would establish worker control over industry. In order to prevent such an uprising from occurring, the IG Farben financed right wing politicians and attempted to influence domestic policy in secret meetings with German leaders. Bayer also played a major role in the political influence exercised by the German chemical cartel abroad. In the years preceding America’s entrance into the war Bayer’s various foreign agencies gave an estimated 10 million marks to Nazi Party associations in other countries. The money was also designated for propaganda. In 1938 Bayer forced an American affiliate, Sterling Drug, to write its advertising contracts in such a way that the contracts would be immediately canceled if the publication presented Germany in an unflattering light.

Bayer, and the IG Farben in which it was an important member, profited handsomely from their support of Adolph Hitler and his foreign policy. By 1942 the IG 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 the IG Farben given possession of chemical companies in foreign lands (the IG Farben 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, IG Farben plants were built next to Maidanek and Auschwitz.

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

Immediately after the war many members of the Vor-stand, or board of directors of the IG Farben, were arrested and indicted for war crimes. There was a large amount of written evidence incriminating the Vorstand, most of it written by the directors themselves. IG Farben executives were in the habit of keeping copious records, not only of meetings and phone calls, but also of their private thoughts on the IG Farben’s dealings with the government. However, despite the quantity of written 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 in the trials were becoming less severe towards the end, and to the judges’ unwillingness to lower the standards for active participation in war crimes to include businessmen.

The Potsdam Agreement referred to the necessity of dismantling the IG Farben in the interests of “peace and democracy.” From 1947 until 1952, when the cartel was disbanded, IG Farben plants operated under Allied supervision. The cartel was finally broken up according to the wishes of the English and the French, who insisted that it be split into sizable chunks instead of the scores of small firms the U.S. envisioned. The division of IG Farben generally adhered to the boundries of the original companies; for instance, the works at Leverkausen and Elberfield reverted to Bayer. Bayer also received the AGFA photographic works.

In the first five years of its independence from IG 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% of the company’s stock.

A plan of overseas expansion was implemented in the late 1950’s; and by 1962 Bayer was manufacturing chemicals in eight different countries including India and Pakistan. Most of the work done was “final stage processing,” that is, small amounts of 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 Third World countries that would not have been profitable otherwise.

In addition, high tariffs in the U.S. and high labor costs in Germany provided incentives for Bayer to acquire production facilities in America. In 1954 Bayer and Monsanto formed a chemical company known as Mobay in order to manufacture engineering plastics and dyestuffs. At that time Bayer did not have sufficient funds to build a plant in the U.S., so it provided the technical expertise while Monsanto provided the financial resources. Even though Bayer had part and eventually full interest in Mobay, Mobay was never allowed to mention Bayer’s name in any promotional material. The American rights to the Bayer trademark were given to Sterling Drug after World War I in retaliation for Bayer’s suppression of American dye companies during the early years of this century.

Realizing that West Germany offered only limited opportunity for growth, even Bayer’s domestic facilities worked on developing products with the United States chemical market in mind. The emphasis was on exporting value-added products for which Bayer held the patents, including pesticides, polyurethane, dye stuffs and engineering plastics. The 1960 discovery of the urethane compound that forms the familiar “crust” on urethane used in auto dashboards is an example of the technical innovation that allowed Bayer to penetrate the U.S. market. 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 U.S. Overall, the decade of the 1960’s was a good one for Bayer as domestic production increased 350% while foreign production increased sevenfold.

In the early 1970’s, Bayer began to increase its already substantial investment in the U.S. Between 1973 and 1977 its investment rose from $300 to $500 million, which went to expand production capacity and add to its product line. Bayer still manufactured dyes, drugs, plastics and synthetic rubber, and rather than adding new product lines Bayer diversified within them. Although all patents held by Bayer before 1952 had been taken away as war retribution, by the mid-1970’s Bayer had expanded its product line to include 6,000 items, many of them patented by the company.

Bayer increased its capacity by both 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. anti-trust suit forced Bayer to buy Monsanto’s share of Mobay which, with $540 milllion in sales, was an expensive transaction. The following year Bayer purchased Miles Laboratories, manufacturers of Alka-Seltzer and Flintstones vitamins.

Bayer had strong incentives to expand its U.S. operations. Due to the prevalence of strikes in Europe, U.S. retailers were wary of European suppliers who did not have large stockpiles in America should the flow of a certain product from Europe be interrupted by a strike. Lower energy and labor costs made America even that much more attractive to Bayer. U.S. holdings also cushioned the impact of the high Deutsche Mark. Since, by the mid-1970’s, 65% of Bayer’s sales came from outside of Germany, it was important that Bayer protect itself against currency fluctuations.

At the beginning of the 1980’s Bayer’s world-wide holdings expanded to the point where its corporate structure needed to be reorganized. German law mandates a two-tier structure for corporations. One tier consists of a management board similar in function to the board of directors of an American corporation. Above the management board there is a supervisory board consisting of major stockholders, labor representatives, and outside interests. This board serves a supervisory capacity as well as approves major decisions and appoints board members. In 1982 Bayer created a third tier below the management board. This board consists of upper management and corporate staff who took over the responsibilities for specific product lines which had previously been the responsibility of board members. Board members are now assigned a specific region. Bayer’s matrix structure, where executives are responsible to more than one supervisor, was left intact at the lower levels of the company.

Bayer began the 1980’s by increasing its already large debt. The company’s response to the oil crisis, when things looked particularly bleak at home, was to increase its expenditures in the U.S. Between 1976 and 1983 Bayer doubled its indebtedness. At home and abroad Bayer found it necessary to extricate itself from the fibers business and commit itself more deeply to chemicals.

1982 was a difficult year for Bayer because AGFA, Bayer’s photographic materials division, was hurt by the high price of silver and the Mobay plastic intermediaries plant was closed. However, in 1983 Bayer wisely used its improved cash flow to make large purchases of raw materials whose prices went up shortly thereafter. In addition, the performance of the U.S. dollar worked to Bayer’s advantage in 1984 and helped to increase pre-tax profits 73%. “We couldn’t be happier with the high dollar,” Bayer’s finance director remarked, “the dollar is knocking out U.S. competition in foreign markets.”

Bayer’s transition from one of the members of the IG Farben to one of the four largest chemical companies in the world is impressive, but not unexpected. Bayer was a member of that group of German dye companies from which modern industrial chemistry evolved. Furthermore, whatever one may think of the company’s well-documented relation to the Nazi regime, Bayer remains unequaled in technical ability and financial management. Since its rebirth in 1952, the company has attempted to expand abroad, especially in the United States. Unlike the American chemical companies which are trying to adapt to changing market conditions by moving into specialty chemicals, Bayer is forging ahead with pharmaceuticals which require less capitalization. Agricultural chemicals, in which Bayer is a world leader, will also be important to the company’s future.

Principal Subsidiaries

Bayer Chemiefaser Verkaufsgesellschaft mbH; Bayer Verwaltungsgesellschaft für Anal-gevermogen mbH; Bayer Diagnostic Electronic GmbH; Bayer Diagnostik GmnH; Bayer-Anhydrit-Verkaufsges-wellschaft mbH; Bayer-Kaufhaus GmbH; Bayropharm GmbH; Bunawerke Huls GmbH; Correcta GmbH; Drugofa GmbH; Dunning & Krausse GmbH; EC Erdol-chemie GmbH; Esarom GmbH; Farbenfabriken Bayer GmbH; Faserwerke Lingen GmbH; Filofarm Arzneimettel GmbH; Fluβ-und Schwerspatwerke Pforzheim GmbH; Formflex GmbH; Frucade Essenzen GmbH; GbR Deutsche BP AG, Hamburg, und Bayer AG; GbR Suddeutsche Zucker AG, Mannheim, und Bayer AG; Gerhard Peter KG; Gesellschaft für Farben-und Chemikalien-Handel mbH; GVC Gesellschaft für Venture Capital Beteiligungen mbH; GVW Garnverediungswerke GmbH; Haarman & Reimer GmbH; Hansa Beteiligungsgesil-schaft mbH; KVP Pharma-und Veterinar-Produkte GmbH; LINDAUER ZAHNE DENTAL GmbH; Makroform GmbH Chemiewerkestoffe; Maschinenfabrik Hennecke GmbH; Metzeler Kautschuk GmbH; Metzeler - Lord Gimetall GmbH; Metzeler Schaum GmbH; Palatinit Su Bungsmittel GmbH; Pallas Versicherung Aktiengesellschaft; Pro Chemie Handelsgesellschaft mbH; Rhein-Chemie Rheinau GmgH; Rheinhold & Mahia GmbH; Sauerstoff-und Stickstoffrohrleitunge-gesellschaft mbH; Schimmel & Co. GmbH; SEKUSA-Spezialgipsfabrik GmbH; Suberit Kork GmbH; Tropon-werke GmbH & Co. KG; Troponwerke GmbH; Wolff Walsrode Aktiengesellschaft; Ylopan Folien GmbH. The company also lists subsidiaries in the following countries: Angola, Argentina, Australia, Austria, Bangladesh, Barbados, Belgium, Bermuda, Bolivia, Canada, Chile, Colombia, Costa Rica, Denmark, Dominican Republic, Ecuador, El Salvador, Ethiopia, Finland, France, Greece, Guatemala, India, Indonesia, Iran, Italy, Ivory Coast, Japan, Kenya, Luxembourg, Malaysia, Mexico, Morocco, Namibia, The Netherlands, New Zealand, Nigeria, Norway, Pakistan, Peru, Philippines, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United Kingdom, United States, Venezuela, Zaire, and Zimbabwe.