Düsseldorf, New York June 24, 2020 will go down in Bayer history as the day on which the table was cleared after the takeover of the controversial Monsanto group. It took the US attorneys a good ten months to negotiate the $ 10 billion settlement with the glyphosate plaintiffs. But it didn’t stop there: Bayer took the opportunity to get rid of the other legal risks inherited from Monsanto.
The signal from Leverkusen is clear: Nobody on the Bayer leadership wants to talk all the time about processes, glyphosate, cancer risk and claims for damages – especially not CEO Werner Baumann, who has been in a communicative glyphosate loop for almost two years. He prefers to talk about the new direction of the group, which wants to ensure better health and nutrition in the world with innovations. “Health for all, hunger for none” is the new direction.
Bayer suffered from being perceived as a permanently defendant company, as Baumann admits in an interview with the Handelsblatt. In addition to glyphosate, the group has now settled the existing lawsuits against the plant protection product Dicamba and because of the contaminated waste water from the chemical PCB – both are heirlooms of Monsanto.
Bayer will cost just under $ 12 billion to resolve these three cases. The company has drawn up a plan for how it will pay for it and how to prevent the next wave of lawsuits from soon approaching it. It is a creative plan that breaks new legal ground – and involves risks.
Relief was felt in many places on Thursday about the general agreement with the plaintiffs’ lawyers in the Roundup case. Analysts now see a decisive brake on the recovery of Bayer’s share price. After all, the group had lost a third of its value after the first lost lawsuits about a possible cancer risk from glyphosate.
“After the comparisons, this Damocles sword over the agrochemical and pharmaceutical company disappears,” said Markus Mayer from Baader Bank. Gunther Zechmann from the US analysis firm Bernstein underlined that Bayer can now concentrate on the fundamental situation again. He raised the target price to 90 euros.
Bayer shares are still a long way from that, losing around two percent on Thursday and trading at EUR 68. “Sell on good news,” a dealer explained the decline. Fund manager Markus Manns from Union Investment sees the comparison amount as expected. With the comparison, Bayer could not eliminate the risks, but could significantly minimize them.
Bayer assumes that the settlement of the current roundup procedures and possible future cases will cost a total of $ 10.1 to 10.9 billion (€ 9.1 to € 9.8 billion). The attached claims include all plaintiffs’ law firms involved in the major proceedings.
New legal territory
The comparison applies to 75 percent of the 125,000 lawsuits filed and announced. The remaining 25 percent should be settled in the coming months, the US lawyer Kenneth Feinberg told the Handelsblatt. The experienced lawyer led the discussions between Bayer and the plaintiffs’ lawyers as chief mediator. Feinberg is also seen as the brain behind the solution with which Bayer wants to prevent a new wave of lawsuits of the current extent. The construct is the real surprise in the agreement between the two parties and has caused a stir among lawyers in the United States.
Bayer does not just set up a fund for future lawsuits. The lawyers on both sides also agreed on the establishment of a five-member commission of experts to scientifically clarify the connection between glyphosate and lymph gland cancer. Only if the panel finds in multi-year studies that the controversial weed remedy does actually cause cancer will future claimants be entitled to compensation.
Bayer’s entire defense was already geared in the processes to scientifically proving the allegation of cancer risk from glyphosate. However, the group was unable to get ahead of the jury in California, which sentenced the company to huge damages in three cases.
The Leverkusen team did not accept the layperson’s assessment of complex studies and went into revision. With the establishment of the expert commission, the evaluation will return to where it belongs, namely in scientific hands, says CEO Baumann.
Lawyers assess this construct as an innovative solution, but it is not without risks. It plans to set up a “group of future plaintiffs”. For the renowned lawyer and law professor Elizabeth Burch, it is unclear how Bayer wants to find this group. “The problem is that it can take many years between using the product and the appearance of non-Hodgkin’s lymphoma,” she explains.
Risky financial plan
Law professor Steven Tapia from Seattle University also describes the solution as “very creative”. But he too is “not sure how a court can rule that future plaintiffs will be bound by the panel’s findings.” Tapia was surprised that Bayer would continue to sell the Roundup product to farmers and private users: “If it really does cause cancer, there will be thousands more cases.” Bayer apparently believes that the panel concludes that Glyphosate is safe.
The financial plan Bayer plans to use to finance the $ 12 billion is not without risk. A small part of it will be covered by insurance. Bayer plans to spend $ 5 billion each year and next year.
This is to be financed by the proceeds from the sale of the veterinary medicine division, for which the competitor Elanco is paying approximately $ 7.6 billion. The rest of the money is to be financed from Bayer’s cash flow and possibly through new bonds.
But that will only work if Bayer generates as strong a cash flow as Baumann has announced. The group also wants to reduce its debt burden of around EUR 34 billion recently and continue to pay attractive dividends. That means: Operatively, the Monsanto project must be a success for Bayer if the financial plan is to work.
The Bayer billions go to the plaintiffs in different amounts, depending on the type and severity of the disease. The sums can range from a few thousand dollars to millions. The plaintiffs’ lawyers collect a large part of the settlement amount – fees of up to a third of the settlement amount are customary. That would mean that the more than 30 law firms involved will receive $ 3 billion.
More: Bayer has never had to pay so much money to settle a wave of lawsuits in the United States. What you should know about the expensive deal.