By Eyk Henning, Scott Deveau and Tim Loh
Bayer AG rose the most in a decade after hiring a high-profile lawyer to fight a slew of cases over its Roundup weedkiller and receiving a major vote of confidence from Elliott Management Corp.
Bayer’s moves to bolster its response to the wave of Roundup lawsuits, including hiring lawyer John Beisner as an adviser, signal a “step change,” the New York-based activist hedge fund said in a statement Wednesday. The shares rose as much as 8.3% in Frankfurt trading on Thursday, their biggest intraday gain since March 2009.
The German company has been dogged by investor unrest since last year’s takeover of agricultural giant Monsanto. Activist fund Elliott, which disclosed a $1.3 billion stake on Wednesday, said Bayer could unlock 30 billion euros in shareholder value with a settlement.
Bayer’s stock has fallen about 40% since the Monsanto acquisition was completed, wiping out about 40 billion euros of market value.
Disgruntled investors rebuked the company’s management at its annual shareholder meeting in April, as judgments mount from claims that Monsanto’s star herbicide, whose active ingredient is the chemical glyphosate, causes cancer. Bayer has said that studies show no cancer link.
The company is starting to shift from a narrowly scientific view of glyphosate’s risk toward taking public perception into account, Markus Mayer, an analyst at Baader Bank AG, wrote in a note to clients. “The chance of legal agreements is rising,” he said.
Bayer has already lost three lawsuits in U.S. courts. The costs of settling the remainder is estimated by Bloomberg Intelligence at $6 billion to $10 billion.
Elliott believes the liability range would more likely be in the range of 4 billion euros to 6 billion euros, according to people familiar with the matter who asked not to be identified because it wasn’t public.
“A settlement would be positive, but not at any price,” said Markus Manns, a fund manager for Union Investment, which holds Bayer shares.
Elliott has a track record of overhauling the companies in which it invests. It teamed up with Veritas Capital to acquire Athenahealth Inc. for about $5 billion after a contentious battle involving the CEO’s departure. Whitbread Plc agreed to sell its Costa coffee chain in January after pressure from Elliott and Sachem Head Capital Management LP. In December, Bloomberg News reported that Elliott wanted Bayer’s management to consider splitting the conglomerate into separate companies making pharmaceuticals and crop products.
Elliott did not detail how Bayer could unlock the value of its underlying assets. It said it looks forward to the company building on the announcement with a commitment to the exploration of “long-term value creative levers” beyond the immediate governance and litigation issues.
“While resolving the litigation challenge is clearly an immediate priority, Elliott believes Bayer could do more to maximize long-term value for all its stakeholders,” the hedge fund said in the statement. “Bayer’s discounted share price today does not reflect the significant underlying value of its constituent businesses.”
What Bloomberg Intelligence Says
“Elliott Advisors wants two things out of Bayer: settlement of its glyphosate lawsuits, which we think could cost it $6-$10 billion, and an eventual split, which we think would resonate with other shareholders. Elliott has been successful in 78% of its campaigns that have concluded to date, and in this case is likely to be pushing at an open door.”
- Christopher Perrella and Michael Shah, BI Analysts
Bayer said in a statement Wednesday that it plans to set up a supervisory board committee dedicated to handling the more than 13,400 U.S. plaintiffs claiming that Roundup caused their cancer. The company said Beisner, of the Skadden Arps Slate Meagher & Flom law firm, will advise the committee, and that it’s looking to further bolster its board with regard to food and agriculture.
Beisner “will provide very valuable and concrete advice on the ongoing litigation as well as the mediation,” Chairman Werner Wenning said Wednesday.