Bayer AG - Stockholders' Newsletter Third Quarter 2006

Bayer Stock

Bayer stock performed very well in the third quarter of 2006. The price of the company’s shares rose by 13.9 percent between the beginning of the year and the end of September. The closing price of €40.20 on September 30, 2006 not only represented the high for the first nine months of this year, it was also the highest level Bayer stock had reached in the past five years. Including the dividend of €0.95 per share for 2005, Bayer stock achieved a performance of 16.9 percent in the first nine months of 2006. Over the same period, the DAX rose by 11.0 percent to 6,004.

Bayer Stock Key Data
	3rd Quarter 2005	3rd Quarter 2006	First Nine Months 2005	First Nine Months 2006
High for the period (€)	30.84	40.20	30.84	40.20
Low for the period (€)	26.78	35.32	22.02	30.56
Average daily share turnover on German stock exchanges (million)	3.9	5.1	4.3	6.0
	Sept. 30, 2005	Sept. 30, 2006	Dec. 31, 2005	Change Sept. 30, 2006/ Dec. 31, 2005 %
Share price (€)	30.49	40.20	35.29	13.9
Market capitalization (€ million)	22,268	30,727	25,774	19.2
Stockholders’ equity (€ million)	11,088	13,164	11,157	18.0
Number of shares entitled to the dividend (million)	730.34	764.34	730.34	4.7

DAX	5,044	6,004	5,408	11.0

2005 figures restated
XETRA closing prices; source: Bloomberg

Price Trend

2005/2006

XETRA closing prices; Source: Bloomberg

The Capital Group Companies, Inc., U.S.A., has notified us pursuant to Section 21, Paragraph 1 of the German Securities Trading Act (WpHG) that the proportion of voting rights it holds in our company exceeded the 10 percent threshold on September 19, 2006, that since that date it has held 10.0179 percent of the voting rights and that all of these voting rights are attributable to it pursuant to Section 22, Paragraph 1, Sentence 1, No. 6 in conjunction with Section 22, Paragraph 1, Sentence 2 and Sentence 3 of the German Securities Trading Act. The Capital Research and Management Company, U.S.A., which according to our information is a subsidiary of The Capital Group Companies, Inc., also has notified us that the proportion of voting rights it holds in our company exceeded the 10 percent threshold on November 8, 2006, that since that date it has held 10.0852 percent of the voting rights and that all of these voting rights are attributable to it pursuant to Section 22, Paragraph 1, Sentence 1, No. 6 of the German Securities Trading Act.

Earnings per share according to IFRS are affected by the purchase price allocation (see Notes to the Interim Report ) and other special factors. To enhance comparability over time, we also determine core earnings per share (from continuing operations), from which these factors are excluded. We do this by eliminating from net income as per the income statement the amortization of intangible assets, asset write-downs (including any impairment losses), special items in EBITDA and extraordinary factors affecting income from investments in affiliated companies (such as divestment gains or write-downs), including the related tax effects. We also deduct income from discontinued operations.

Calculation of Core Earnings per Share*
	3rd Quarter 2005	3rd Quarter 2006	First Nine Months 2005	First Nine Months 2006
€ million
Net income	493	320	1,551	1,372
+ Amortization and write-downs of intangible assets	153	190	418	470
+ Write-downs of property, plant and equipment	41	23	50	48
+/- Special items (other than write-downs)	(170)	335	74	497
+/- Extraordinary income/loss from investments in affiliated companies	–	–	–	–
+/- Tax adjustment	(9)	(193)	(190)	(355)
+/- Income/loss from discontinued operations	(39)	(51)	(105)	(78)
Core net income from continuing operations	469	624	1,798	1,954
+ Financing expenses for the mandatory convertible bond, net of tax effects	–	25	–	48
Adjusted core net income	469	649	1,798	2,002
Million shares
Weighted average number of issued ordinary shares**	730.34	760.28	730.34	740.43
Potential shares to be issued upon conversion of the mandatory convertible bond	–	60.12	–	41.30
Adjusted weighted average total number of issued and potential ordinary shares	730.34	820.40	730.34	781.73

Core earnings per share from continuing operations (€)	0.64	0.79	2.46	2.56

* Adjusted core net income and core earnings per share are not defined in the International Financial Reporting Standards. These indicators are therefore to be regarded only as supplementary information. The company believes that they give readers a clearer picture of the results of operations and ensure greater comparability of data over time.
** including newly issued shares from the capital increase pro rata temporis