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Covid complicates Monsanto litigation talks for Bayer

Shares rise as German chemicals giant beats forecasts on sales and profits

In February, Bayer acknowledged for the first time that lawsuits related to Roundup could force it to sell assets, issue new equity or borrow money at unfavourable terms. Photograph: Reuters

Mon Apr 27 2020 - 10:19

Monsanto parent Bayer raised the spectre of "considerable liquidity challenges" as it engages in high-stakes negotiations over weedkiller Roundup litigation in the US and grapples with the coronavirus pandemic.

The number of plaintiffs claiming that the weedkiller caused their cancers rose to 52,500 from 48,600 in February, Bayer said in its first-quarter earnings statement.

It is still too early to know how Covid-19 will impact this year’s results, but the outbreak has already slowed talks with plaintiff attorneys. Bayer said it is pushing for a “financially reasonable” settlement that also resolves the potential for future claims.

“Against the background of a looming recession and looking at, in part, considerable liquidity challenges, this applies now more than ever,” the company said.

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The Roundup talks remain the biggest question hanging over chief executive Werner Baumann, who faces a confidence vote at Tuesday's annual meeting. He lost the vote last year after Bayer suffered multiple US trial defeats, severely hitting the company's stock price and raising questions about the wisdom of the $63 billion takeover of Monsanto.

Crop Science

Bayer rose as much as 3.8 per cent Monday in Frankfurt, paring this year’s losses to 15 per cent.

Bayer’s first-quarter sales and earning beat estimates, led by a crop-science division that saw robust demand for insecticides and fungicides, Sanford C Bernstein analysts led by Gunther Zechmann said in a note. The pharmaceuticals and consumer-health units also did better than expected.

“We’re not overly worried about the Covid-19 impact on Bayer,” the analysts wrote.

Bayer said it was still targeting 2020 core earnings per share between €7 and €7.20, although the effect of Covid-19 was impossible to assess. A reliable forecast will not be possible until later this year, the company said.

Customers stocking up on supplies early on in the outbreak also boosted Bayer, and that will probably fade in coming months, according to Michael Shah, an analyst at Bloomberg Intelligence.

The drawn-out Roundup talks only add to the cloud of uncertainty over the company, he said.

Gross financial debt was €39.6 billion as of March 31st, compared to €4.2 billion of cash and other financial assets, Bayer said in slides accompanying the results.

The company began mediation talks with plaintiff attorneys in May. After the coronavirus outbreak took hold, Bayer backed out of tentative agreements to resolve the claims, Bloomberg News reported earlier this month, citing people who asked not to be identified because the talks are private. That gave more time to assess the impact of the pandemic, and may help Bayer keep the total amount of Roundup settlements under $10 billion, the people said.

Growing Costs

In February, Bayer acknowledged for the first time that lawsuits related to Roundup could force it to sell assets, issue new equity or borrow money at unfavourable terms. Still, the company had “quite a solid balance sheet” to cover the growing costs of its legal troubles, Mr Baumann said at the time.

One prominent plaintiff attorney, Brent Wisner, said in February that Bayer had 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 at the time.

After losing three cancer trials in California that resulted in combined damages of $191 million, Bayer agreed to postpone the next round of Roundup trials to provide more time for negotiations. At least six scheduled to start in the first quarter of this year have been put on hold. Bayer is appealing the verdicts. – Bloomberg

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