August 9, 2019
By Jef Feeley, Joel Rosenblatt and Tim Loh
Bayer AG is proposing to pay as much as $8 billion to settle more than 18,000 U.S. lawsuits alleging its Roundup herbicide causes cancer, according to people familiar with the negotiations.
An agreement, which could take months to work out, would ease investor pressure over massive litigation exposure the German drug and chemical giant took on with its purchase of the weedkiller’s maker, Monsanto Co. The fallout has erased more than $30 billion in market value, prompted an unprecedented shareholder vote of no confidence in the company’s management and fueled speculation about a breakup.
While Bayer floated paying $6 billion to $8 billion to resolve current and future cases, plaintiffs’ lawyers want more than $10 billion to drop their claims, the people said, asking not to be identified because the talks are private. How to compensate consumers who have yet to be diagnosed with illness is a sticking point, and there’s no guarantee the two sides will come to terms anytime soon, they added.
Bayer traded 3.5% higher in Frankfurt after surging more than 11%, the most in a decade. They’ve still fallen about one-third in the 14 months since the Monsanto deal was completed. The bonds also rose.
“$8 billion would be lower than most analysts are forecasting and many investors fearing,” Markus Mayer, an analyst at Baader Helvea, wrote by email.
Bayer spokesman Tino Andresen declined to comment on any settlement talks.
Bayer’s lawyers and attorneys for former Roundup users are in ongoing talks, based in New York City, aimed at hammering out an accord to resolve all current cases and any future cancer claims filed over the world’s top-selling weedkiller, people familiar with the discussions said.
The negotiations have advanced to the point that Bayer and plaintiffs’ lawyers asked two judges in St. Louis to push back cases set for trial starting soon, the people said. Bayer Chief Executive Officer Werner Baumann said at the end of July that he’d consider a “financially reasonable” settlement -- after the company’s shares slumped amid a surge of new cases.
If a deal comes together, it would allay a shareholder revolt in the wake of three trial losses in a row in California that resulted in average payouts of almost $50 million per plaintiff after judges reduced jury verdicts that added up to more than $2.4 billion. Thousands of new cases followed each defeat.
Major investors -- such as U.S.-based billionaire Paul Singer’s Elliott Management Corp. -- have been urging Bayer to drop its defend-at-all-cost approach to the suits and consider a settlement. Elliott disclosed in June that it has a $1.3 billion stake in Bayer.
Bayer’s decision to seek postponement of the St. Louis trials is a clear signal settlement talks are progressing, said Carl Tobias, a University of Richmond law professor who teaches about mass personal injury litigation. U.S. judges traditionally put cases on hold to give the parties a chance to resolve them, he said.
“If they can get out of this for under $10 billion after losing three in a row -- with big awards assessed -- it would be a great deal for Bayer,” Tobias said. “They lose a couple of more big ones in St. Louis and settlement demand could balloon to $20 billion.”
Some litigation analysts have predicted Bayer will ultimately settle the cases for as little as $2.5 billion and as much as $20 billion. Experts have said that awards of tens of millions of dollars per plaintiff were a strong and bad sign for Bayer’s prospects in future trials, weakening its hand in settlement negotiations.
The settlement talks have been fostered by Kenneth Feinberg, a mediator called in by U.S. District Judge Vince Chhabria in San Francisco, who’s overseeing cases consolidated in federal court.
Feinberg previously administered compensation funds for victims of the Sept. 11 attacks and later was hired by Volkswagen AG to oversee compensation for car owners affected by the diesel emissions-cheating scandal. He’s been working with attorneys for both Bayer and plaintiffs as they swap settlement proposals, the people said.
Feinberg, appointed in May, had to work quickly as Bayer was slated to face the next Roundup trial starting Aug. 19 in state court in St. Louis, the former headquarters of Monsanto, which started selling Roundup in the 1970s.
Juries in another St. Louis-area court -- known for favoring plaintiffs -- have come back with some supersized awards over the years, including a $4.69 billion verdict in 2018 against Johnson & Johnson over claims its baby powder was tainted with asbestos.
Bayer insists that Roundup is safe. The U.S. Environmental Protection Agency on Thursday issued guidelines for products containing the herbicide’s active ingredient, glyphosate, saying it will no longer approve labels claiming that it’s known to cause cancer. California listed the substance as a carcinogen under its Proposition 65 toxic warnings law two years ago.
Court officials said this week that Roundup trials set for August and September will probably be postponed. They did not say whether the postponements were tied to settlement talks.
Bayer wants to avoid getting thumped with another $2 billion-plus verdict, like the one handed down in May by a jury in Oakland, California, to a husband and wife who both blamed their cancers on exposure to Roundup, Tobias said. Last month, a judge slashed that verdict by more than 95 percent to $86.7 million, saying it was beyond the limits allowed by legal precedent.
The Oakland award was the largest in the U.S. this year and the eighth-largest ever in a product-defect claim, according to data compiled by Bloomberg.
“They don’t want to try these cases in St. Louis,” Tobias said. “It could be worse than California.”
What Bloomberg Intelligence Says
“We still have reservations about the underlying business. Crop Science still faces macroeconomic risks and Pharma is in need of further deals, which could be scuttled by the need to delever and pay the settlement.”
-Michael Shah, pharma analyst and Christopher Perrella, chemicals analyst
But coming up with a way to corral all future claims in a settlement that withstands court scrutiny may be difficult, said Jean Eggen, a Widener University law professor who teaches about toxic torts and environmental law.
The U.S. Supreme Court hasn’t looked very favorably on other mass-tort settlements meant to resolve future claims over a product, she said.
“It’s much cleaner if you just settle the current cases and then when more come in, you add to the original settlement,” Eggen said. “It’s a less problematic way to do this.”
The consolidated case is In re: Roundup Products Liability Litigation, MDL 2741, U.S. District Court, Northern District of California (San Francisco).
--With assistance from Tim Bross, Eyk Henning and Albertina Torsoli.
To contact the reporters on this story:
Jef Feeley in Wilmington, Delaware at [email protected];
Joel Rosenblatt in San Francisco at [email protected];
Tim Loh in Munich at [email protected]
To contact the editors responsible for this story:
Eric Pfanner at [email protected];
David Glovin at [email protected]
© 2019 Bloomberg L.P.
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