Apollo financing transaction expected to have only a modest impact on Bayer's earnings while improving balance-sheet flexibility

Overview

This report reviews Bayer's financing transaction with Apollo Global Management involving the LARC business. Bayer will organize the Long Acting Reversible Contraceptives business as a standalone entity and obtain €3bn in equity financing by granting Apollo a non-controlling interest; the specific ownership structure has not been disclosed. Goldman Sachs believes the transaction will have a limited overall impact on Bayer's Core EPS, while strategically increasing financial flexibility, reducing leverage, and demonstrating management's willingness to improve the balance sheet in a more open and creative manner.

Core views

The core view is that the transaction is broadly neutral financially and modestly positive at the balance-sheet level. The core assets of the LARC business are the Mirena family of products, which generated €1.37bn in sales in 2025; Goldman's model assumes sales will remain broadly flat going forward. If Apollo holds a 30%-40% minority stake in the new entity and the LARC business has an EBIT margin of 30%-40%, Bayer's Core EBIT could decline by approximately €125mn-€220mn annually. However, the reduction in debt and interest expense resulting from the €3bn financing is expected to amount to approximately €130mn annually, with interest savings of up to €210mn under a higher bond-rate scenario. Accordingly, the impact on Core EPS is expected to be modest and could even approach neutral under a scenario involving the replacement of higher-interest debt.

Analysis framework

Goldman Sachs uses scenario-based financial analysis to assess the transaction's impact. Using Apollo's minority-stake percentage, the LARC business's EBIT margin, Bayer's average cost of debt, and the range of bond interest rates as key assumptions, it estimates changes in Core EBIT, interest expense, Core EPS, and net debt/EBITDA. The valuation combines DCF and SOTP, each accounting for 50% of the target-price weighting, resulting in a 12-month target price of €62.5.

Methodology notes

• Valuation methodsDCF and SOTP blended valuation

  DCF and SOTP valuation weighted 50% each

  Goldman's DCF valuation is €65 per share, assuming an 8.8% WACC and a 1.5% terminal growth rate; its SOTP valuation is €60 per share. Each accounts for 50% of the target-price weighting, producing a 12-month target price of €62.5.

• financial_modelingtransaction impact scenario analysis

  Transaction impact scenario analysis

  The report uses assumptions including Apollo ownership of 30%-40%, an LARC EBIT margin of 30%-40%, an average cost of debt of 4.3%, and bond interest rates of 1%-7% to estimate the reduction in Core EBIT, interest savings, and the net impact on Core EPS.

• factor_profileGoldman Sachs Factor Profile

  Growth, financial returns, valuation multiples, and composite factor profile

  The GS Factor Profile provides investment context by ranking a stock's growth, financial returns, and valuation-multiple metrics by percentile relative to the market and industry peers. The composite metric is the average of growth, financial returns, and inverse valuation multiples.

• event_frameworkM&A Rank

  Probability ranking for potential acquisition targets

  Goldman's M&A framework assesses the probability of a company becoming an acquisition target on a scale of 1 to 3: Level 1 represents 30%-50%, Level 2 represents 15%-30%, and Level 3 represents 0%-15%. If a company is rated Level 1 or 2, an M&A component is included in the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Bayer AG (BAYGN.DE)

  Covered entity and recommended stock

  Strengths

  Buy rating, €62.5 target price, potentially lower post-transaction leverage, and improved financial flexibility.

  Weaknesses

  Introducing a minority stake in LARC will reduce Core EBIT attributable to Bayer; generic-drug pressure in Pharma and Crop Science earnings momentum remain constraints.

  Comparison

  The target price comprises 50% weighting for the €65 per-share DCF valuation and 50% for the €60 per-share SOTP valuation, above the €51.18 closing price in the historical target-price table.

  Risks

  Crop Science earnings turning negative again, generic drugs in Pharma weighing on margins, adverse litigation outcomes or slower-than-expected resolutions, and DSO-related costs and operating benefits being realized more slowly than expected.

• LARC business / Mirena

  Business assets involved in the Apollo transaction

  Strengths

  Mirena products provide up to eight years of contraceptive protection and generated €1.37bn in sales in 2025; mature brands require less promotion, supporting an assumed margin above the Pharma division average.

  Weaknesses

  Goldman's model assumes sales remain flat going forward, limiting the growth contribution; selling a minority stake will transfer part of the business profits to non-controlling interests.

  Comparison

  Assumed LARC EBIT margin of 30%-40%, above the approximately 20% margin of the Pharma division.

  Risks

  The actual transaction ownership structure has not been disclosed; the final earnings impact will depend on Apollo's ownership percentage, the business margin, and the interest rate on the debt replaced by the financing.

Key data

• Apollo financing amount€3bnApollo will participate in financing the new Bayer LARC entity through a non-controlling interest.
• Mirena 2025 sales€1.37bnThe Mirena family is a key asset of the LARC business, and Goldman's model assumes sales will remain broadly flat going forward.
• Assumed Apollo ownership30%-40%The minority-interest assumption used for illustrative calculations in the report; the actual ownership structure has not been disclosed.
• Assumed LARC EBIT margin30%-40%Higher than the approximately 20% margin of the Pharma division, reflecting lower promotional requirements for mature brands.
• Potential Core EBIT reductionApproximately €125mn-€220mn/yearEquivalent to approximately 2%-3% in FY27E and approximately 1.5%-2% over the long term.
• Potential interest expense savingsApproximately €130mn/yearBased on Bayer's average cost of debt of 4.3%; savings could reach approximately €210mn if higher-interest bonds are refinanced.
• Net impact on Core EPSApproximately -1% to -2% in FY27E; approximately -0.5% to -1% over the long termInterest savings are expected to largely offset the impact of the minority stake on earnings.
• Net debt/EBITDA impactApproximately 0.2x reductionFrom Goldman's current FY27E forecast of 3.2x to approximately 3.0x pro forma for the Apollo transaction.
• Analyst ratingBuyGoldman Sachs rates Bayer Buy.
• 12-month target price€62.5DCF and SOTP each account for 50% of the weighting.
• Upside23.3%The upside disclosed in the report.
• Closing price in target-price table€51.18The closing price corresponding to 06-Jul-26 in the historical target-price table.

Impact & implications

The transaction's direct earnings contribution is not the main highlight for Bayer. More importantly, replacing a portion of external debt costs with external minority-interest financing could improve financial flexibility and reduce leverage. For investors, the transaction reinforces management's willingness to improve the balance sheet. However, as the impact on Core EPS is expected to be modest, share-price catalysts will continue to depend on Crop Science earnings momentum, generic-drug pressure in Pharma, litigation developments, and the realization of cost and operating benefits from the DSO operating model.

Risks

• Crop Science earnings momentum turns negative again.
• The impact of generic drugs in Pharma is greater than expected, weighing on divisional earnings growth.
• Litigation developments produce adverse outcomes or take longer to resolve than expected.
• Costs and operating benefits from the new DSO operating model are realized more slowly than expected.
• The final ownership structure of the Apollo transaction has not been disclosed, and the actual impact on Core EPS and leverage may differ from the report's illustrative estimates.

What to watch

• The final terms of the Apollo transaction and the ownership structure of the new entity.
• The debt repayment arrangements associated with the €3bn financing and the actual interest savings.
• Whether LARC sales, particularly Mirena sales, remain stable.
• Whether Bayer's FY27E net debt/EBITDA approaches approximately 3.0x pro forma for the transaction.
• Crop Science earnings trends, generic-drug pressure in Pharma, litigation developments, and the realization of DSO cost savings.