February 27, 2020
By Tim Loh
Bayer AG acknowledged for the first time that lawsuits related to the controversial weed killer Roundup could force it to sell assets, issue new equity or borrow money at unfavorable terms.
In its annual report published Thursday, Bayer said that it “may incur considerable financial disadvantages” from pending suits as well as future cases from U.S. plaintiffs who say the herbicide causes cancer.
Bayer, which insists that Roundup is safe, says it’s too early to determine whether any of the worst-case scenarios described in the report will materialize. The company has “quite a solid balance sheet” to cover the growing costs of its legal troubles, Chief Executive Officer Werner Baumann said.
Bayer needs to know how much money the litigation will cost before figuring out how to pay for it, he said. In the meantime, the company’s appealing three U.S. court cases it’s lost while seeking a settlement with lawyers for tens of thousands of other claimants.
“All sources of liquidity would be available to us,” Baumann said in an interview with Bloomberg Television. “The question then is what is the most commonsense thing to do. We are very cognizant of our shareholder base.”
Shares are down 31% since Bayer closed the $63 billion takeover of Monsanto, which brought it Roundup. That’s led investors to criticize the acquisition’s rationale and raised questions about whether Baumann will ultimately keep his job. The stock fell as much as 4.1% in Frankfurt trading Thursday.
The ranks of new people filing Roundup suits appears to be leveling off: Bayer is now facing 48,600 U.S. plaintiffs, up from 42,700 in October, the company said as it reported full-year earnings. A surge could derail the settlement talks.
“The number of cases is a real problem in getting the litigation resolved,” Brent Wisner, a lawyer for some of the plaintiffs, said in an email before Bayer provided updated figures. “If we cannot make a deal very soon, this whole settlement process will fall apart.”
Wisner said Bayer has dangled the prospect of bankruptcy for Monsanto, which could result in plaintiffs receiving pennies on the dollar for their claims. Bayer declined to comment on this.
The possible measures cited in the annual report could result from compensatory and punitive damages awarded to plaintiffs or from out-of-court settlements, the company said. It’s unlikely that Bayer will need to raise a large amount of money for this, Chief Financial Officer Wolfgang Nickl said in an interview Thursday.
“Bayer has to cover itself in all directions,” Markus Mayer, an analyst at Baader Bank AG, said by email.
In July, Bayer reported lawsuits from 18,400 plaintiffs linking Roundup to cancer -- a figure that by October had more than doubled. Last month, the mediator handling settlement negotiations said that the volume of cases at the heart of the talks may have increased beyond 85,000. Bayer called the figure “speculative,” and has instead focused on the number of cases that have already been served.
Baader Bank’s Mayer expects a settlement before the next shareholder meeting at the end of April. Baumann declined to comment on the talks Thursday.
The company’s growth forecast for this year fell short of estimates. Core earnings per share will probably increase to between 7 euros and 7.20 euros in 2020, Bayer said in a statement. That compares with an average estimate of 7.34 euros from analysts surveyed by Bloomberg.
After Chairman Werner Wenning announced his retirement Wednesday, Baumann will be called on more than ever to steer the German giant out of the Roundup crisis -- and prove to skeptics that Bayer’s dual focus on healthcare and farming makes sense. Baumann praised Norbert Winkeljohann, who will succeed Wenning, saying that he has the necessary experience to do a good job and that in his first two years on Bayer’s board he’s championed, among other things, digitalization.
While crop science has hogged the spotlight, Bayer increasingly needs to show a path forward for its pharmaceuticals division that in coming years will lose big sales as blockbusters Xarelto and Eylea come off patents.
In maintaining that Roundup is safe and doesn’t cause cancer, Bayer got the backing of the U.S. Environmental Protection Agency last month.
Roundup isn’t Bayer’s only legal problem. Another herbicide inherited from Monsanto, dicamba, creates another potentially multibillion-dollar headache for the Leverkusen, Germany-based company.
About 170 plaintiffs in the U.S. had sued Bayer and rival BASF SE over dicamba as of Feb. 6, Bayer said Thursday. Plaintiffs allege the chemical drifted onto crops that weren’t engineered to resist it. The companies lost the first U.S. trial over the chemical earlier this month with a $265 million jury award. Bayer is appealing.
--With assistance from Joel Rosenblatt.
To contact the reporter on this story:
Tim Loh in Munich at [email protected]
To contact the editors responsible for this story:
Eric Pfanner at [email protected]
© 2020 Bloomberg L.P.
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