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Activist investor rallies Bayer shareholders as pressure on CEO mounts -sources

FILE PHOTO: The historic headquarters of German pharmaceutical and chemical maker Bayer AG is pictured in Leverkusen

By Emma-Victoria Farr, Patricia Weiss and Oliver Hirt

FRANKFURT (Reuters) -Bayer investor Jeff Ubben has contacted fellow shareholders in the German group, investors and sources familiar with the matter told Reuters, in an apparent attempt to rally support for big changes at the drugs-to-pesticides company.

The campaign increases the pressure on non-executive Chairman Norbert Winkeljohann, who has faced calls from large shareholders for the swift replacement of Chief Executive Werner Baumann, who engineered Bayer's troubled Monsanto takeover.

The approaches come after Ubben's activist investment fund Inclusive Capital Partners said last month it had bought a 0.83% stake in Bayer.

Ubben told the Financial Times at the time he would prefer an external candidate to replace Baumann and that while a break-up of the group may not be necessary, it needs to be considered.

David Herro, deputy chairman of Harris Associates, told Reuters in brief emailed comments that Ubben had contacted him to discuss Bayer. He did not provide further details.

Ubben has also been in touch with a portfolio manager at a large German mutual funds firm, and proposed a meeting, according to a person familiar with the matter.

Another source said Ubben had reached out to a large number of institutional Bayer investors to get support for a campaign to quickly replace Baumann with a candidate from outside the company to revive the sagging share price.

The investors declined to be identified due to the sensitivity of the matter.

Ubben did not respond to requests for comment.

A spokesperson said Bayer was always open to a constructive dialogue with shareholders and declined to comment further.

Two large German mutual companies and major Bayer shareholders Union Investment and Deka have also said they would like a swift CEO changeover at the group, whose business spans drugs, consumer healthcare products, seeds and pesticides.

Investors who have publicly called for a swift CEO change hold at least a combined 6.7% in Bayer, according to Refinitiv data.

Activist investor Bluebell Capital Partners, which has built an undisclosed stake, is looking for similar. It also wants a break-up of the company.

STRATEGIC CHANGES

It's unclear if there is consensus on the strategic changes that shareholders want the future leadership to pursue.

Speaking on condition of anonymity, one fund manager said a break-up of Bayer must not be rushed and may come in gradual moves.

Harris Associates's Herro said he preferred an external CEO appointment in the near future but added there was "nothing specific" when asked about his demands regarding strategy and group structure.

Any attempts by shareholders to coordinate how they exert influence over a company is a balancing act because shareholders who are found to act in concert and hold a combined 30% voting stake have to make a takeover offer to the remaining shareholders under German law.

Other obligations that come with acting in concert include publication of the size of jointly held stakes, which financial and activist investors typically seek to avoid.

The annual shareholder meeting scheduled for April 28 will be an opportunity for investors to express their views.

Despite recent improvements in the company's agriculture business and drug development prospects, Bayer shares have been weighed down by litigation related to a product it acquired through its 2018 takeover of Monsanto.

A stalwart of German industry with a nearly 160-year history, Bayer has lost over 40% of its market value since buying Monsanto.

Shareholders have also cited a lack of market confidence in top management as a burden on shares.

Baumann, who engineered the Monsanto deal with the backing of then-Chairman Werner Wenning, was given a new contract in 2020 that runs until 2024 and said at the time he would leave the company when that expires.

($1 = 0.9308 euros)

(Reporting by Patricia Weiss and Emma-Victoria Farr in Frankfurt, Oliver Hirt in Zuerich;Additional reporting by Svea Herbst in New York;Writing by Ludwig Burger;Editing by Josephine Mason and Mark Potter)