Bayer's Chief Executive Marijn Dekkers came with M&A credentials from his previous job last year and investors have been looking for clues where he plans to take the 147 year-old German drugmaker.

He has said a €17 billion ($23.8 billion) takeover deal could be financed, eyeing healthcare and genetically modified seeds as growth areas, and that Bayer's plastics and foams could end up on the block to fund a transformational transaction.

Bayer will host its annual "Meet Management" analyst conference at its Leverkusen headquarters on Wednesday, and Dekker's M&A strategy will be high on analysts' question lists.

The following explores the likelihood of Bayer targeting a transformational deal versus seeking a number of smaller acquisitions and licensing deals.

Transformational Takeover
One of the last listed companies to combine drugs and chemicals businesses, Bayer is subject to perennial speculation it might shed the latter to fund a large takeover in healthcare.

The prospect of a portfolio overhaul has been shoring up the stock's appeal, according to analysts at UBS and Collins Stewart. That is because fund managers prefer single-industry stocks to create the desired sector mix in their portfolios over cross-sector companies like Bayer.

"There is a conglomerate discount applied by the market and it is time to rethink that. We see a high probability of a transformational deal over the next 12-24 months," said Emmanuel Papadakis, an analyst with Collins Stewart in London.

"There are plenty of healthcare targets. It is a very sensible time to divest MaterialScience, given that its performance has
reached a peak."

Analysts at Jefferies said in a note on Monday that Bayer's "break-up valuation," the sum of what its three units are worth separately, exceeds the group's market value by 74%.

Yet Dekkers made clear that MaterialScience would only be used "as currency" in a larger takeover after debt and equity funding options have been exhausted.

Recent chemical-sector deals suggest Bayer could get up to €15 billion for MaterialScience when valuation multiples of 10 to 11 times annual core earnings are applied.

Two people with knowledge of Bayer's M&A strategy said that there is the possibility of a large purchase but that such a deal could happened towards the end of the year at the earliest.

Dekkers himself has said that a tie-up deal with one of the world's 20 largest pharmaceuticals peers, for instance, would qualify as large, implying a threshold of roughly $17 billion.


Focus On Smaller Deals And Alliances
"Within the next year I see a 70 to 30%  likelihood of bolt-on acquisitions versus a larger takeover. Bayer is well positioned and they are in no rush," said Markus Manns, a portfolio manager and healthcare sector analyst at Union Investment in Frankfurt.

Dekkers, the mastermind behind the merger that created U.S. lab gear maker Thermo Fisher, said that as long as Bayer's disparate businesses remain competitive with world-class technology they will stay with Bayer.

"At Thermo Fisher, Dekkers has made a name for himself for a successful large takeover. One could easily jump to the conclusion that he has a similar feat in mind at Bayer. But that's not necessarily the case. There is harsh competition for any (healthcare) companies that are put up for sale," he added.

Stefan Muehlbauer, an analyst with Silvia Quandt Research said that smaller purchases or development alliances would be the better avenue than a mega deal to build Bayer's pharmaceuticals pipeline.

CEO Dekkers has said that the main thrust of expansion would be in emerging markets and his finance chief Werner Baumann last month specified that M&A deals in these markets are likely to be small to medium-sized.