Financial Statements
6.2 Business combinations and other acquisitions
Acquisitions are accounted for by the purchase method, the results of the acquired businesses therefore being included in the consolidated financial statements as from the respective dates of acquisition. The purchase prices of acquired companies domiciled outside the eurozone were translated at the exchange rates in effect at the respective dates of acquisition. The revised version of IFRS 3, published in January 2008, was applied for the first time in 2010. The main changes compared to the previous version of IFRS 3 are described in
Note [3].
Acquisition costs in 2010 amounted to €43 million (2009: €404 million). The purchase prices of the acquired companies or businesses were settled mainly in cash. Total goodwill of €12 million (2009: €177 million) arose on these acquisitions. It related principally to the following transactions:
Artificial Muscle, Inc. of Sunnyvale, California, United States, a technology leader in the field of electroactive polymers for the consumer electronics industry, was acquired on March 9, 2010. The purchase price of €21 million pertained mainly to patented technologies and goodwill.
The remaining 50% interest in BayOne Urethane Systems LLC was acquired on November 30, 2010. BayOne was previously a marketing joint venture between Bayer MaterialScience LLC and PolyOne Corp., headquartered in St. Louis, Missouri, United States, which specializes in customized formulations of polyurethane foams and elastomers. The purchase price of €15 million pertained mainly to customer relationships, which are reflected in other rights, and to goodwill. The remeasurement of the already held 50% equity interest to fair value resulted in a €12 million gain, which was recognized in other operating income. The effect of remeasurement was allocated among other rights (€6 million), production rights (€2 million) and goodwill (€4 million). The fair value of the already held interest at the acquisition date was €14 million. Since the purchase price allocation has not yet been completed, changes may yet be made in the allocation of the purchase price to the individual assets.
The acquired businesses named above contributed €1 million to Bayer Group sales in 2010. These portfolio changes had an effect of €6 million on the operating result (EBIT) for 2010. A total after-tax result of €5 million was recorded for the acquired businesses since the respective dates of their first-time consolidation. This included the financing costs incurred since the dates of acquisition and the remeasurement gain explained above.
If these acquisitions had already been made as of January 1, 2010, the Bayer Group would have had total sales of €35,108 million in 2010. Income after taxes would have amounted to €1,308 million, taking into account the effects of the remeasurement of the acquired net assets and hypothetical financing costs for the full year. Earnings per share would not have been materially affected.
The effects of these acquisitions, some minor other transactions and purchase price adjustments related to transactions effected in 2009 on the Group’s assets and liabilities as of the respective acquisition dates are shown in the table. Net of acquired cash and cash equivalents, they resulted in the following cash outflow:
| Acquired Assets and Assumed Liabilities | [Table 4.26] |
|---|
| | Pre-
acquisition
carrying amount | Fair-value
adjustment
| Fair value
at the
acquisition
date |
| | € million | € million | € million |
| Goodwill | - | 12 | 12 |
| Patents | - | 11 | 11 |
| R&D projects | - | 1 | 1 |
| Production rights | - | 2 | 2 |
| Other rights | - | 5 | 5 |
| Other noncurrent assets | - | 3 | 3 |
| Other current assets | 3 | - | 3 |
| Cash and cash equivalents | 1 | - | 1 |
| Other liabilities | (2) | - | (2) |
| Deferred taxes | - | 1 | 1 |
| Net assets | 2 | 35 | 37 |
| Non-controlling interest | - | - | 3 |
| Changes in non-controlling interest | - | - | 3 |
| Purchase prices | | | 43 |
| Acquired cash and cash equivalents | | | 1 |
| Liabilities for future payments | | | 2 |
| Net cash outflow for acquisitions | | | 40 |
The fair-value adjustment reflected the differences between the carrying amounts of the assets and liabilities in the acquiree’s statement of financial position prior to their acquisition and the fair values in the acquirer’s statement of financial position at the acquisition date.
In 2009 the following acquisitions were accounted for in accordance with IFRS 3:
The remaining 10% of the shares of Bayer Polymers (Shanghai) Co. Ltd., China, was acquired on June 25, 2009, for €24 million. The difference between the carrying amount of this 10% interest and the purchase price was recognized as goodwill.
Two dermatology product lines were acquired from SkinMedica, Inc., Carlsbad, California, United States, on October 1, 2009, for €43 million. These prescription medications, Desonate™ and NeoBenz™ Micro, are marketed in the United States. The main components of the difference between the carrying amount of the acquired net assets and the purchase price were €37 million pertaining to production rights and trademarks for the two product lines and €5 million of goodwill.
Athenix Corporation, a privately held biotechnology company headquartered in Research Triangle Park, North Carolina, United States, was acquired on November 2, 2009, for €286 million. The purchase price included future milestone payments of approximately €24 million that will fall due upon the achievement of certain development goals. Athenix has an extensive herbicide tolerance and insect control trait development platform, particularly for corn and soybeans. The main components of the difference between the carrying amount of the acquired net assets and the purchase price were €217 million that pertained to development technologies and were reflected in other rights, €69 million in deferred taxes and €132 million of goodwill. The goodwill relates mainly to the anticipated synergies from an increase in our ability to provide farmers worldwide with new technologies and complete agricultural solutions from seed to harvest.
The effects of these and other, smaller acquisitions made in 2009 on the Group’s assets and liabilities in that year as of the respective acquisition dates are shown in the table. Net of acquired cash and cash equivalents, they resulted in the following cash outflow:
| Acquired Assets and Assumed Liabilities (Previous Year) | [Table 4.27] |
|---|
| | Pre-
acquisition
carrying amount | Fair value
adjustment
| Fair value
at the
acquisition
date |
| | € million | € million | € million |
| Goodwill | - | 177 | 177 |
| Patents | - | 1 | 1 |
| Trademarks | - | 3 | 3 |
| R&D projects | - | 4 | 4 |
| Marketing rights | - | 2 | 2 |
| Production rights | - | 34 | 34 |
| Other rights | 3 | 226 | 229 |
| Property, plant and equipment | 5 | - | 5 |
| Inventories | - | 1 | 1 |
| Cash and cash equivalents | 12 | - | 12 |
| Financial liabilities | (1) | - | (1) |
| Other liabilities | (7) | - | (7) |
| Deferred taxes | - | (71) | (71) |
| Net assets | 12 | 377 | 389 |
| Non-controlling interest | - | - | 15 |
| Purchase prices | | | 404 |
| of which ancillary acquisition costs | | | 2 |
| Acquired cash and cash equivalents | | | 12 |
| Liabilities for future payments | | | 38 |
| Net cash outflow for acquisitions | | | 354 |
Acquisitions after the closing date
The New Zealand company Bomac, which offers a wide range of animal health products for the livestock sector, was acquired on January 7, 2011. Bomac focuses particularly on the treatment of mastitis in dairy cattle and on parasiticides for sheep. The purchase price of €85 million pertained mainly to customer relationships and goodwill.
On January 28, 2011, we signed an agreement with the Indian pharmaceutical company Zydus Cadila to form a joint venture that will enhance our presence in India’s fast-growing pharmaceuticals market. The new marketing and sales company will be headquartered in Mumbai, India. Closing of the transaction is currently expected by mid-2011.