Status: 14.09.2021 8:24 a.m.
Five years ago today, Bayer made the largest acquisition in its history with Monsanto. But the deal turned into a nightmare. The glyphosate litigation has cost a good ten billion dollars so far. Will it stay that way?
Bayer CEO Werner Baumann made great promises when the nearly $ 63 billion takeover of the Monsanto seed company was finally sealed on September 14, 2016. The deal will be worthwhile for the shareholders, he predicted.
The full-bodied announcement turned out to be an empty promise – until now. Since the largest purchase in Bayer’s history, the share price has plummeted by 50 percent. At 53 billion euros, the market capitalization is now lower than the price that Bayer once paid for Monsanto.
“Purchase was wrong decision”
Shareholder representatives are upset. “The price decline since the Monsanto takeover was announced is unprecedented,” says Ingo Speich, head of sustainability at Deka Bank, which holds shares in Bayer. “Values have been destroyed here to such an extent that it takes your breath away.” The shareholder representative now calls the purchase of Monsanto “a wrong decision”. Union Investment’s fund manager Janne Werning also has “great doubts that the Monsanto deal will become a success story”.
In fact, the side effects of the mega deal are hard to cope with. The purchase of the American crop protection giant caused a huge wave of lawsuits – because of the pesticide glyphosate, which some studies believe to be carcinogenic. Bayer suffered a setback three times in court in the first instance. The group also lost out in two of the appeal procedures. The pharmaceutical and agrochemical company paid $ 9.6 billion in settlements for the settlement of 96,000 of the total of 125,000 lawsuits.
Biggest loss in history
As a result, the Leverkusen-based company had to set up high provisions on the balance sheet. Last year alone, these led to a deficit of 10.5 billion euros. That was the biggest annual loss in Bayer’s 155-year history.
Recently it looked like Bayer could finally draw a line under the glyphosate litigation. An agreement was about to be reached. But then a district judge rejected a final settlement with the US plaintiffs’ attorneys. Bayer then changed its strategy and drafted a five-point plan. The Leverkusen-based company submitted an application for a revision of the Edwin Hardeman case to the highest US court. The procedure should therefore be clarified at the highest judicial level by the Supreme Court. Analysts at brokerage firm Bryan Garnier write that a “never-ending story” will be continued.
Hoping for the Supreme Court
If the Supreme Court decides in favor of Bayer, that would be an exemption and probably the end of the longstanding legal dispute. The chances for this are good, it is said from Leverkusen. But if the US Supreme Court ruled in favor of the plaintiff or does not want to negotiate the case, there is a risk of further billions. As a precaution, Bayer set aside $ 4.5 billion in provisions in the second quarter. Previously, $ 2 billion had been earmarked for additional lawsuits. In the worst case, the glyphosate litigation could cost up to around $ 16 billion.
Bayer boss Baumann is relaxed. He sees himself on the safe side. Again and again he emphasizes that the company is not wrong. “Life is always life-threatening,” says Baumann. Glyphosate is no more dangerous than red meat, mate tea or the hairdressing profession. Baumann refers to the international cancer agency IARC, which has only classified the active ingredient as “probably carcinogenic”.
More than 800 studies have shown that glyphosate is not hazardous to health when used properly, emphasize the Leverkusen-based group. The lawyers of the glyphosate plaintiffs oppose this with studies to the contrary. Celebrity support comes from Robert Kennedy Jr., lawyer and nephew of the ex-US President.
Glyphotate-containing products will not be sold in the United States beginning in 2023
In order to avoid another wave of lawsuits, Bayer no longer plans to sell glyphosate-containing products to private customers in the United States from 2023. However, the group is sticking to its business with farmers and professional customers. In 2024, Germany will ban the use of glyphosate. It is still unclear whether the EU will also ban the plant protection product.
For this year Baumann promises the first harvest from the Monsanto deal. “We assume that we will achieve all the synergies from the merger by the end of 2021 and thus one year earlier than originally planned,” he told the “Handelsblatt”. The successes from the takeover would become clear in the next few years, he announced.
Baumann under pressure to succeed
The corporate leader urgently needs success reports, otherwise the support in the company could dwindle. His contract has just been extended for three years to 2024. Actually, Baumann should have vacated his post a long time ago if his shareholders had their way. At the 2019 Annual General Meeting, they gave him a historic slap in the face. They refused to give him discharge. More than 50 percent voted against Baumann. There had never been such a vote before in a DAX company. Nevertheless, Baumann refused to resign.