Home / Business / Bayer's Roundup Cancer Costs Seed Doubts About Its Monsanto Merger

Bayer's Roundup Cancer Costs Seed Doubts About Its Monsanto Merger



Bayer has to pay $ 81 million in damages to a man who claims the Roundup weedkiller caused his cancer, a jury ruled Wednesday. In a similar way last year, the sum was $ 289 million, reduced to $ 78 million on appeal. Since that first verdict, Bayer's shares have lost 40% of their value — and there are still around 11,300 cases waiting in the wings.

All of which begs the question: was it foolhardy for Bayer to buy Roundup maker Monsanto? 19659002] Some, including activist Bayer shareholder Christian Strenger, say it was. Stronger has filed a motion of no confidence in Bayer's board ahead of the German giant's annual general meeting next month, and it includes a litany of complaints about the "almost complete failure to deliver the key objectives presented by [Bayer CEO Werner] Baumann in May 201

6 for the Monsanto acquisition. ”

But before looking at Strenger's argument, let's consider the rationale behind that $ 66 billion whopper of a deal.

Why Bayer bought Monsanto

Bayer bought Monsanto as part of its reinvention as a life-science firm with a focus on health and agriculture. At the time the deal was proposed in 2016, the competitive landscape of the agricultural science space was shifting dramatically — Dow and DuPont were merging, and so were ChemChina and Syngenta. Bayer wanted to become a bigger player in seeds and genetically modified crops, and Monsanto offered just that.

Monsanto was also an early mover in the burgeoning "digital agriculture" arena, explains Sanjiv Rana, the editor-in-chief of Informa crop protection analysis outfit Agrow. "The acquisition gave Bayer an advantage in the field," he said.

But there were problems from the get-go.

First, the deal raised antitrust concerns in the US – it only went ahead after the companies agreed Bayer sells its Roundup compilation Liberty herbicide business, along with its cotton, canola, soybean and vegetable seed businesses, various research and development projects, and Bayer's own digital agriculture business. Chemicals company BASF was the lucky buyer, paying $ 9 billion.

And then there was the glyphosate issue. The International Agency for Research on Cancer (IARC) in the agency of the World Health Organization (WHO) issued a report in early 2015 that said the pesticide, which is Roundup's active ingredient, was probably carcinogenic to humans. The WHO and United Nations were clarified that glyphosate was unlikely to pose a carcinogenic risk to humans from exposure through the diet. However, eating roundup residues is one thing and spraying the stuff over many years — as both successful plaintiffs did — is another.

The IARC report, which was established at glyphosate was probably carcinogenic, was partly based on studies of farmers who had been exposed to the substance. So why have regulators not cracked down? “Many regulatory agencies rely primarily on industry data from toxicological studies that are not available in the public domain,” says the IARC in a Q&A on its study. "In contrast, IARC systematically assembles and evaluates all relevant evidence available in the public domain for independent scientific review." In essence, the IARC, not a regulatory authority itself, considered that different sets of data from those considered by regulators, avoiding industry studies

Strenger, who is a prominent German governance expert, customs Fortune the most important question as the cancer cases proceed is whether " too little in terms of warning signs. ”

“ Mr. Baumann from Bayer always refers to 800 opinions that glyphosate is a safe product, ”said Strenger. "But the big issue is how it was applied, and it was sold properly with sufficient warning signs." A jury awarded plaintiff Dewayne Johnson $ 289 million after claiming Monsanto's weedkiller caused his cancer. A judge later cut that award to $ 78 million. (Photo by JOSH EDELSON / AFP) “/>

A jury awarded plaintiff Dewayne Johnson $ 289 million after claiming Monsanto's weedkiller caused his cancer. A judge later cut that award to $ 78 million. (Photo by JOSH EDELSON / AFP)

Stronger argues in his no confidence motion that Bayer underestimated the legal risks of the 3,600 outstanding glyphosate-related lawsuits that were already underway before the deal closed, part because Monsanto was prohibited by the US Department of Justice from giving Bayer full details of all the cases.

"[Bayer] should have insisted," he said. Bayer should have the duty Monsanto, 'Either you get the DOJ to permit disclosure, or we're not going to proceed with the transaction.' ”However, stricter suggests, after two years of dealing with issues such as the deal's antitrust implications, Bayer's Bayer rejects that notion. A spokesperson insists that, in the run-up to the Monsanto acquisition, Bayer's board “performed this risk assessment based on an information and update process which was in all respects adequate for an acquisition of such a scale.”

“Of course , in the context of the acquisition, the board of management also reviewed the risks associated with Monsanto's glyphosate business, "the spokesperson said." This risk assessment clearly showed that when used as directed, the products of Monsanto containing glyphosate are safe. Based on the views held by regulatory authorities worldwide and scientists, the board of management assessed the legal risks in connection with the use of glyphosate as low. ”

 Werner Baumann has been CEO of Bayer AG, speaks at the Annual Press Conference. The Bayer Group presents its annual financial statements on February 27, 2019. Photo: Oliver Berg / dpa (Photo by Oliver Berg / picture alliance via Getty Images)

Werner Baumann has been CEO of Bayer AG, speaks at the Annual Press Conference . The Bayer Group presents its annual financial statements on February 27, 2019. Photo: Oliver Berg / dpa (Photo by Oliver Berg / picture alliance via Getty Images)

picture alliance picture alliance via Getty Image

As for Strenger's point that Thousands of lawsuits were already underway before the deal's mid-2018 closure, the spokesperson argues that only 120 lawsuits had been pending at the time of the merger agreement in September 2016.

Stronger also claims that Bayer underestimated the forced divestitures, saying the sales cut the projected deal synergistically by 20%. "Most divestments were generally expected," said Bayer's spokesperson. "Some additional divisions were not expected."

'Hard to foresee'

In the view of Agrow's Rana, "really not much of a case against Monsanto" as regulators had not identified Roundup as being risky , and the company therefore was obliged to put cancer warnings on Roundup packaging, "but juries get swayed by emotions and that's what happened in both cases." "So, although a thorough due diligence must have been done by Bayer, it would have been hard foresee the emotional impact on the outcome of these cases, "he said." The upcoming annual general meeting will likely be a tumultuous one, but I doubt a no-confidence vote would get through. " 19659004] To this point, Bayer's spokesperson noted that "in its latest meeting, the supervisory board expressly confirmed again that it unanimously supports the board of management and its strategy, including the acquisition of Monsanto."

As for the potential liab Dewayne Johnson — The Judge Assessment The Jury's Damages Damage ended up cutting the damages down to less than a third.

“When judges come into the picture, Bayer just might see it through even though it seems to be facing insurmountable odds at present. ”

Evaluating the Bayer board's ruling ultimately comes down to that: how badly the lawsuits end up hurting the company. Pointing to the share price has taken place since the Monsanto takeover closed June, Strenger said “the market seems to be unloaded in the double-digit billion area.” But with so many suits lined up, it's hard to know for sure what the final tally will look like.

"From a legal perspective, one has to keep in mind that management has to be based on the facts that were available at the time the decision was made rather than on the information available with hindsight. , "Said Andreas Cahn, executive director of the Institute for Law and Finance at the Goethe University in Frankfurt.

But from a business perspective, it's all about the outcome.


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