By Richa Naidu and Ludwig Burger

LONDON (Reuters) -Bayer needs to make major changes, including “de-merging” two of its three business arms, investor Artisan Partners told Reuters on Friday, adding to a chorus of demand for change from other investors.

Activist Bluebell Capital Partners called for a breakup earlier this year. Other top investors, including mutual funds group Deka, had railed against the company’s previous leadership. Some have said an easy fix would be to separate the healthcare and agricultural businesses.

Artisan’s call will add to the pressure on Bill Anderson, who was brought in from Swiss rival Roche to take on the top job in June. Anderson has been tasked with reviving Bayer’s share price, which has underperformed rivals, weighed down by the lingering costs of U.S. weed killer litigation.

Artisan wants the drugs-to-pesticides company to find new owners for its over-the-counter and pharmaceutical units, it said.

“Recently we wrote a letter to the conglomerate Bayer — and it is a conglomerate,” David Samra, founding portfolio manager of Artisan’s International Value team, said in an interview.

Bayer has a “whole host of problems” including “too much debt,” Samra said.

Anderson said this month he was not ruling out any options as part of his review of the diversified company’s strategy and structure, “leaving no stone unturned”.

He will provide an initial update in the coming months and detailed plans in early 2024, he added.

Before taking over as CEO, Anderson said he was keeping an open mind on whether to break up the company. But some other investors have opposed such a move.

Artisan is Bayer’s 16th biggest investor, according to Refinitiv data. It did not disclose the size of its stake.

Artisan suggested “that they cut the dividend to zero because they need the capital to effectively operate and reinvest back in their business,” Samra said, adding that the letter was sent prior to Bayer’s earnings results announcement on Aug. 8.

“Then in their earnings release, the company specifically came out and said they’re committed to their dividend which is the exact opposite of what they should be doing in the long-term best interest of their business.”

Bayer declined to comment.

Anderson has inherited several challenges from his predecessor Werner Baumann, including U.S. lawsuits claiming Bayer’s weed-killer Roundup causes cancer.

The company said in an unscheduled statement last month that it was projecting a steeper fall in earnings, zero free cash flow and asset write-downs this year, in what some analysts suggested was Anderson seeking to get bad news out quickly to allow for a fresh start.

Samra said the chairman of Bayer’s supervisory board, Norbert Winkeljohann, has not directly written a letter back to Artisan, but said Artisan had “been in contact” with the company.

Samra said Artisan “has not suggested specifically how (Bayer) should restructure their business” in the letter.

He said in the interview that only Bayer’s Crop Science unit was “properly scaled” with “long-term advantages”, while he called its over-the-counter health products and pharmaceuticals units “sub-scale”, low-margin and “probably more valuable in the hands of somebody else”.

The farming seed and pesticides division Crop Science, the second largest global supplier in the industry after China’s Syngenta, accounts for about half of Bayer’s sales.

Large pharma players have spun off non-prescription drug businesses over the last year, with Johnson & Johnson listing Kenvue, and GSK listing Haleon in 2022.

(Reporting by Richa Naidu and Ludwig Burger; Editing by Matt Scuffham, Diane Craft and Rosalba O’Brien)

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