What investors are looking for from Bayer’s legal battle

Munich — Bayer is close to a turning point in its legal battle over the weedkiller Roundup. But it still has work to do to convince investors that buying Monsanto made sense.

The German drug and agriculture giant reached verbal agreements to resolve tens of thousands of US cancer lawsuits over its Roundup weedkiller, Bloomberg News reported on Monday.

While the deals have yet to be signed, they cover an estimated 50,000-85,000 cases out of a total of 125,000 lawsuits, according to people familiar with the negotiations, who asked not to be identified because they are not authorised to speak publicly.

Here is a breakdown of what has happened and what investors are looking for next.

What’s at stake?

Billions of dollars. Bayer’s shares rallied Monday, but they have still lost about a third of their value since the company took over Monsanto two years ago, erasing more than $30bn of market value. Bayer has struggled to focus on the future at a time when it lost three US trials over whether Roundup, which it inherited in the $63bn deal, caused people’s cancer. After those losses, the number of lawsuits skyrocketed.

These verbal agreements are part of a $10bn plan Bayer has to resolve the Roundup litigation, the people said. Of that, $8bn would cover current lawsuits while $2bn would be reserved for future claims from people who have used Roundup but may not have developed non-Hodgkin’s lymphoma yet.

If Bayer can resolve the situation for $10bn, its shares will probably keep rising, said Markus Mayer of Baader Bank. That is because the company’s market value implies that investors have factored in a Roundup discount of at least $30bn.

What has been agreed to thus far?

Some of the verbal agreements resolve many of the strongest lawsuits against Bayer, the people said. Even so, these deals have not yet been signed, so nothing is final. It is still unclear how much of the $8bn would go to these cases and how much would be left over for other cases that are not subject to an agreement yet. And there are still tens of thousands of those. Because of that, there is no guarantee Bayer will stay within the $8bn it has budgeted for filed and backlogged lawsuits, the people said.

How did the plaintiff count get to 125,000?

In April, Bayer said that the number of Roundup plaintiffs had grown to 52,500. That figure, however, only includes cases that have been filed and served in US courts. Meanwhile, there is another category of cases that are being held in abeyance by plaintiffs’ lawyers under agreements with Bayer. Everything needs to be addressed, and people familiar with the matter estimate the total number of cases is about 125,000.

Once Roundup is resolved, is Bayer’s drama over?

Probably not. From the start, the Monsanto takeover was controversial. Bayer said it fits into its strategy of becoming a bigger life-science company, one with divisions in pharmaceuticals, consumer health and agriculture. All three sectors are key to the wellbeing of a growing population on a warming planet in the coming decades, Bayer has said.

While some investors agree with that, others see little point in combining such different businesses under one corporate roof. These investors want to decide on their own whether they are betting on promising cancer therapies, say, or new types of corn seed. Because of the Roundup legal cloud, however, it has been difficult to have a meaningful discussion about the company’s structure. That debate could intensify once Bayer settles the Roundup litigation.

What will happen to Roundup?

Under terms of the verbal agreements, Roundup would continue to be sold in the US for use in backyards and farms without any safety warning. Meanwhile, plaintiffs’ attorneys would agree to stop taking new cases or advertising for new clients, the people said.

The settlements are designed to resolve claims that Roundup, whose active ingredient is the chemical glyphosate, caused non-Hodgkin’s lymphoma in some users. The company denies that it causes cancer, a position backed by the US Environmental Protection Agency.

How much has this cost Bayer?

Beyond the potential settlement price, Bayer has factored in costs already in the Roundup fight. It has earmarked €480m for its defence, a figure that includes money set aside for the coming three years of expected spending on the matter. It has been reimbursed for €28m from insurance on the Roundup front.

Bayer still has to pay $191m in the three Roundup trials it lost in the US, after judges slashed the initial combined damages of $2.4bn awarded by juries. That Bayer is trying to appeal against those cases may be designed to send a signal on future claims that it will not just roll over and pay, said Carl Tobias, a University of Richmond professor who specialises in mass-tort law.

Bloomberg