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Bayer Group Eyes A Lost Continent: America


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BAYER GROUP EYES A LOST CONTINENT: AMERICA

For three-quarters of a century, watching Americans pop Bayer aspirin has given Bayer Group a headache. The German company that invented aspirin in 1899 had its U.S. business and trademark rights snatched away and auctioned off during World War I to Sterling Winthrop as enemy spoils. Germany's Bayer went on to build up its global brands for aspirin and other drugs, while Sterling likewise made Bayer an American household name. Mver the years, the trademark was so meticulously policed that German executives couldn't even pass out their Bayer business cards in the U.S.

Could relief finally be in sight? The Germans are hopeful after a decision in mid-May by Sterling's parent company, Eastman Kodak Co., to put Sterling on the block. Bayer clearly would like a chance to make it big in the U.S. pharmaceutical market under its own name. It is particularly keen on winning a bigger share of the growing over-the-counter business as companies try to meet demands for low-cost health care. Snagging Sterling's global nonprescription drug business would add $900 million to Bayer's health-care sales of $5.8 billion. Says CEO Manfred Schneider: "We really want to improve our nonprescription situation in the U.S."

But Bayer doesn't necessarily have a lock on the deal. In fact, rival Elf Sanofi of France has the first shot at making a bid, thanks to a 1991 agreement to jointly develop and sell new prescription drugs worldwide. Kodak won't say whether it prefers to sell Sterling in one block or in pieces. But Sanofi is working with Kodak representative Goldman, Sachs & Co. to prepare a bid for Sterling's worldwide prescription business as well as its nonprescription operations in Europe. While that leaves the U.S. business up for grabs, Goldman is said to be rustling up other bidders.

Schneider would like to make his company whole again--if the price is right. Bayer is one of Germany's big three chemical companies, with some $600 million in over-the-counter sales worldwide, half of that in aspirin. It is well represented in Europe and Latin America and just signed a distribution agreement in Japan last year. But in the U.S., where it only operates under the Miles Inc. trade name, it boasts few hit products. Its mainstays: Alka-Seltzer and One-A-Day vitamins.

NASTY PHASE. So Schneider sees ample room to grow, particularly with the surge of managed health-care programs. These powerful price-setters are forcing drug companies to offer a broad range of low-cost products to win their business. Sterling's nonprescription business would provide entree. Schneider has already taken a stake in the generic drug business, grabbing a 28% chunk of Schein Pharmaceutical Inc.

Bayer is hoping to regain its American foothold just as its relationship with Sterling is in its nastiest phase. In 1986, Bayer Group paid $25 million for rights to call its Pittsburgh-based holding company Bayer USA Inc. and to use the Bayer name in chemical, rubber, and other lines as long as it avoided the pharmaceutical business and general advertising. But Sterling grew so irritated by what it saw as breaches of this agreement concerning advertising and promotion campaigns that in 1992 it secured a strict injunction against any Bayer Group activities that could put the Bayer name before the American public. Most embarrassing: Miles had 45 days in which to recall from its customers and destroy all the pens, baseball caps, and coffee mugs that said Bayer USA Inc. in small print. This injunction was overturned last January on appeal.

Even if Bayer wins its bid for reunification, it won't be getting quite the gem it lost. Over the decades, Bayer aspirin is no longer the pain reliever of choice. In the roughly $2.6 billion U.S. pain-reliever business, Bayer aspirin's share is some 6% and slipping, estimates Information Sources Inc., thanks to the rise of Tylenol and Advil. Another pain reliever, Aleve, will debut this summer. Sterling has battled back with Bayer Select, a family of pain relievers that have not caught on as well as hoped. Schneider sees this as a potential plus. "Sterling's Bayer aspirin has lost a little bit of its reputation," he admits. "I hope it will reduce the price we have to pay." Still, bringing the U.S. back into the fold is unlikely to come cheap.

WHY BAYER WANTS STERLING

THE NAME BRAND

Sterling controls the Bayer trademark and logo in the U.S.

THE ASPIRIN BUSINESS

Sterling sells $150 million in Bayer aspirin products annually.

DISTRIBUTION

Sterling's other over-the-counter drugs generate $750 million in U.S. sales.

DATA: COMPANY REPORTSKaren Lowry Miller in Leverkusen, Germany, with Joseph Weber in Philadelphia


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