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Bayer’s Billions in Roundup Verdicts Increase Pressure for New Legal Strategy *Centurion Insurance AFS*

Jan 31, 2024 (0) comment , , , , , , , , , ,



Bayer AG faces mounting pressure to come up with a new plan for handling its Roundup weedkiller litigation after getting hammered by US jury verdicts totaling almost $4 billion over the last three months.

The German conglomerate’s latest courtroom loss was its biggest since Roundup cases started going to trial five and a half years ago, with a Pennsylvania jury awarding $2.25 billion to a former Roundup user who blamed his cancer diagnosis on long-term exposure to the herbicide.

Related: Bayer Jury’s $2.2 Billion Roundup Verdict Is Biggest Yet

That prompted a fresh slump in Bayer’s shares, as investors worried about the more than 50,000 Roundup claims outstanding in the US that accuse the company’s Monsanto unit of hiding the product’s cancer risks. After last week’s award, they’re beginning to worry about whether the company has the financial resources to keep fighting these cases for years to come.

“If they settle again, it will not put an end to future cases, and we might see another wave of litigation in one or two years,” said Markus Manns, a portfolio manager at Union Investment in Frankfurt. Manns said the Roundup cases “will probably be more expensive than we thought, and it is unclear if the legal provisions are sufficient.”

Limited Options

The company has spent about $10 billion of the $16 billion it set aside to resolve more than 150,000 cases over Roundup. The remainder is intended for newly filed cases and existing suits that bowed out of previous settlement efforts.

But if Bayer can’t strike a new deal, and if it fails in an appeals court argument that federal law preempts state-based claims against it, the company could face similar high jury verdicts every few months.

“Their only option is to continue winning cases and settle the cases which they fear they might lose,” Manns said. “Obviously they haven’t done a good job in selecting these cases in the past.”

Negotiating a global Roundup settlement may be difficult for Bayer because the cases now going to trial are spread out among several state courts that operate under different rules and procedures. The previous accord involved federal cases that were consolidated and overseen by a single judge.

It also involved thousands of state cases — the majority of the lawsuits, according to Bayer — that weren’t grouped together under the judge. Still, the federal multidistrict litigation “gave Bayer a center of gravity that it doesn’t have this time around,” said Elizabeth Burch, a University of Georgia law professor. “I don’t see an easy way out for them.”

‘Strength of the Science’

Bayer, which has won 10 of the last 16 Roundup trials over the last half decade, says it has a winning record even in difficult venues for corporate defendants, like California, in which plaintiffs strategically file their suits. It says it won’t back down.

“The company is committed to trying Roundup cases based on the strength of the science, favorable regulatory assessments worldwide and a proven record of success at trial,” Bayer said in a statement. It said it has “appropriately provisioned for this litigation” and “will not incentivize plaintiff law firms through mass settlements of claims that are completely at odds with the overwhelming weight” of the research.

The company’s stock has lost about 70% of its value since Bayer’s 2018 acquisition of Monsanto, when it inherited Roundup and the resulting legal headaches. On Tuesday in Frankfurt the shares fell 2.2% to close at €30.08 ($32.62), the lowest since June 2006, according to data compiled by Bloomberg.

Bayer increased its litigation fund to $16 billion from $11.6 billion in mid-2021, but the lawsuits keep piling up.

Broader Problem

Despite Bayer’s win-loss record, the whopping size of some of the recent verdicts is making it harder for new Chief Executive Officer Bill Anderson to convince investors that he can contain the litigation. Some investors are hoping Bayer can come up with a new and creative way to put a solid lid on the Roundup litigation.

“They need to spell out the strategy, for sure,” as long as they can do so without strengthening the hand of the plaintiffs’ attorneys, said David Herro, a portfolio manager at Harris Associates LP, one of Bayer’s top investors.

The costs of the litigation extend beyond dollar figures. The Roundup mess has created a cloud of uncertainty over the company that complicates efforts by Anderson — a Texas native who joined Bayer only last year — to deal with several other challenges.

For one thing, Anderson is leaning against separating either the consumer health or crops science division for now, despite calls from many investors to do so, after spending months reviewing strategic options, Bloomberg News reported earlier this month. But if Bayer keeps its current corporate setup, it’s challenging to raise money to pay down debt and beef up its pipeline of experimental pharmaceutical products.

The Roundup litigation hangs over it all.

“At some point there needs to be an endgame” for the lawsuits, said Stanford Law School Professor Nora Freeman Engstrom, who teaches about mass tort law. “This drip, drip, drip of billion-dollar verdicts has to be extremely upsetting to Bayer and destabilizing to its bottom line.”

Diverging Fortunes

When Bayer first pursued Monsanto in 2016, it had a market cap of about €85 billion, roughly the same as German software giant SAP SE at the time. Bayer is now worth about €30 billion ($32.48 billion). Meanwhile SAP, which is betting big on artificial inBayer Montelligence, more than doubled its stock price and is now valued at about €200 billion.

The recent Roundup court losses may push Anderson to tighten up on shareholder dividends, “ranging from lowering the payout band to a potential suspension,” Thibault Boutherin at Morgan Stanley wrote in a client note.

Amid legal payouts and other problems, Bayer may record no free cash flow for fiscal 2023, a situation that Anderson decried in November as unacceptable.

Bayer has said it has strong grounds to appeal the $2.25 billion Roundup verdict and seek to have the award declared excessive, but there’s no guarantee judges will reduce the payout to the company’s liking.

After Johnson & Johnson challenged a jury’s $4.7 billion award in 2018 to 20 women who blamed their cancers on tainted talc in its baby powder, it ended up with a final tab of about $2.5 billion. The US Supreme Court declined to take up its appeal.

Bayer says that in its first three losses it got the final judgments knocked down on appeal by more than 90% overall.

Hopes on Appeal

Bayer still hopes it can reduce much of the uncertainty, and cost, of the litigation by convincing US appeals courts that federal law preempts state-based claims that Monsanto failed to warn consumers of Roundup’s risks. The argument is based on the Environmental Protection Agency’s finding that glyphosate, a Roundup ingredient, isn’t a carcinogen and the EPA’s approval of the Roundup label without a warning.

Such an appellate ruling could hobble thousands of Roundup cases.

If that effort fails, the picture could keep getting bleaker. The final price tag for the litigation could well exceed the $16 billion Bayer has set aside, according to Manns of Union Investment.

“We could see a cash outflow of $1 billion to $2 billion per year for the foreseeable future,” he said.

Photo: Photographer: Daniel Acker/Bloomberg

Copyright 2024 Bloomberg.



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