FRANKFURT (Reuters) - Germany's Bayer (BAYGn.DE) plans to list its plastics business on the stock market in a deal that could value the division at about 10 billion euros ($13 billion) and allow the group to focus on its more profitable life-science businesses.
News of a spin-off that Chief Executive Marijn Dekkers said will free up money for investment in Bayer's healthcare, veterinary drugs and crop protection businesses, lifted the company's shares to a record high.
By 1535 GMT (11.35 a.m. EDT) the shares had gained 6.2 percent to 112.70 euros, outperforming a 0.7 percent gain for the STOXX Europe 600 Health Care index .SXDP.
Dekkers said that MaterialScience, which has profit margins less than half the average across the Bayer group, had held up investment in life-science operations and would be better placed to obtain funding as an independent company.
"Our life-science business was not always first in line when it came to investment financing," he said in a conference call discussing a move that follows a wider healthcare industry trend of divesting weaker divisions to bulk up in areas of strength.
"In this way, Bayer would position itself as a world-leading company in the field of human, animal and plant health," the company said, adding that it would float MaterialScience within the next 12-18 months.
Signaling its increased focus on healthcare, Bayer also announced it would step up investment in research and reiterated that five of its key drugs had the potential to generate combined annual sales of at least 7.5 billion euros.
Investors have long speculated that Bayer could split off MaterialScience, which makes transparent plastics for blu-ray discs and panoramic roofs for luxury cars, as well as chemicals for insulation and padding foams.
Bayer said that stock market conditions will dictate whether the business will be listed in an initial public offering or spun-off with shares given free to existing Bayer shareholders, but it did not rule out the possibility of an outright sale if it were to receive an attractive offer that would also preserve jobs at the business.
Sources familiar with the matter said Bayer held talks this year with German chemicals rival Evonik (EVKn.DE) over a deal for MaterialScience, but the parties were too far apart on price expectations.
Equinet analysts value MaterialScience at almost 10 billion euros, while brokerage DZ Bank said it was worth about 11 billion euros including debt.
However, questions remain over whether an independent MaterialScience will continue in its current shape.
Bayer said in March that the business was not earning its cost of capital, which it put at 6.9 percent in 2013, implying that its hypothetical standalone market value would decline. The unit achieved only a 5.5 percent return on capital last year.
The division, which has been hit by big increases in raw materials costs, generated adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of 1.2 billion euros in the 12 months to June, 14 percent of the group total.
Average trading multiples in the European specialty chemicals industry of about 10 suggest a value of 12 billion euros including debt.
MaterialScience's EBITDA margin in the first half was 11.2 percent, against Bayer's group-wide margin of 23.6 percent.
Bayer's healthcare business, its biggest division, had an adjusted EBITDA margin of 28.2 percent in the first half of the year, while CropScience, the smallest unit, hit 31.9 percent.
The healthcare industry has seen a wave of deals this year that have reshaped several large companies, with the prospect of more to come.
Investment bank Jefferies said in a note this week that Bayer could look to expand in animal health, an increasingly lucrative sector as more of the world's population eat meat, potentially through acquisitions.
The sector-wide juggling of assets was exemplified by a complex three-way deal between GlaxoSmithKline (GSK.L), Novartis NOVN.VX and Eli Lilly (LLY.N) in April to swap consumer, animal health, oncology and vaccine businesses.
U.S. drugmaker Merck (MRK.N), meanwhile, sold its non-prescription health business to Bayer this year and many large drugmakers are looking to divest some older prescription drugs.
Additional reporting by Ben Hirschler in London, Matthias Inverardi in Duesseldorf; Editing by Pravin Char and David Goodman