Bayer insurance may not cover claims

Bayer, the German chemicals to pharmaceuticals group, yesterday admitted for the first time that its insurance cover might not be enough to meet claims over its recalled anti-cholesterol drug, Baycol.

Bayer is facing a slew of legal actions over Baycol and yesterday managing board chairman Werner Wenning acknowledged that its liabilities could exceed its insurance cover if "plaintiffs substantially prevail despite existing defence arguments".

He added that the group was unable to estimate the extent of any uncovered liabilities and that, with the agreement of its auditors, it was not making any provision for the amount it might have to pay out of its own pocket. Mr Wenning said Bayer would keep the need for establishing provisions under review.

Baycol was withdrawn from the market in the summer of 2001 after it had been linked to a number of deaths. Bayer said yesterday that the number of claims had risen by 600 to 8,400. Of the total Bayer said 4,600 were virtually identical claims from a single law firm which had not provided any details of the ailments suffered by the plaintiffs.

So far Bayer has reached out of court settlements with some 500 claimants - without conceding liability - paying out a total of €140m. Mr Wenning said that it was continuing out of court negotiations with "several hundred" other claimants.

He added: "At the same time we are defending ourselves vigorously in all cases where there is no connection between Baycol and the health problems that are subject of the claims or where a fair settlement cannot be reached."

Colin Isaac, an analyst at investment bank JP Morgan said: "They've said for the first time that the insurance may not cover the liabilities and the number of cases has risen. Neither of those two things is surprising but it's not good news to see them in black and white."

This week Bayer found itself facing another legal challenge after a shareholder lawsuit was filed against the company, Mr Wenning and his predecessor, Manfred Schneider, claiming investors were not properly informed over the problems with Baycol. "We will examine the complaint and vigorously defend ourselves," Mr Wenning said.

The Bayer managing board chairman described 2002 as a year a transition. Sales fell 1% to €29bn (£19.6bn) but operating profit before exceptional items plunged 46% to €989m. However, net income -boosted by the proceeds from a number of disposals - was 10% higher at €1.1bn.

Bayer is still looking for a strategic solution for its pharmaceutical operation which is widely regarded as too small to stand alone. In the past Bayer has indicated it would look for partners but wanted to maintain a majority shareholding. It is now understood to be considering the possibility of a 50-50 partnership.

The group is planning to cut net debt by almost €2bn to €7bn this year and to bring in costs savings of about €500m.

Mr Wenning said that the present economic situation made forecasting earnings for the current year difficult but added: "Provided the present situation does not radically deteriorate we expect to increase our operating result from continuing operations over 2002."

In Germany, Bayer's shares slipped 1.5% to €10.40, having earlier dipped below €10. For shareholders the board is recommending an unchanged dividend of 90 cents a share.