Bayer Shares Fall After Jury Finds Exposure to Roundup Helped Trigger Cancer -- 2nd Update
March 20 2019 - 08:05PM
Dow Jones News
By Ruth Bender
BERLIN -- Shares of Bayer AG tumbled 9.6% Wednesday -- the
biggest single-day percentage decline in seven months -- after the
chemicals and pharmaceuticals giant faced another legal setback in
its fight against accusations that its Roundup weedkiller causes
cancer.
A San Francisco jury found that exposure to Roundup was a
"substantial factor" in triggering a man's non-Hodgkin lymphoma.
The verdict shows how the German company's $63 billion acquisition
of U.S. agriculture giant Monsanto Co. -- which was designed to
bolster Bayer's fading fortunes -- has now become its biggest
potential liability.
The verdict is the latest to come from a batch of related cases
going to trial this year. Bayer needs the tide to turn in its favor
both to avoid what analysts fear could be billions in potential
legal damages and to convince investors that its Monsanto bet was
right.
Bayer said it was disappointed with the jury's decision but
continued "to believe firmly that the science confirmed that
glyphosate-based herbicides did not cause cancer."
The company is facing lawsuits from 11,200 farmers, gardeners
and landscapers. Bayer has said the extent of the litigation it now
faces wasn't foreseeable at the time of the Monsanto deal, which
turned the inventor of aspirin into the world's largest maker of
seeds and pesticides.
After the deal was announced in 2016, many investors and
analysts warned of the risks to Bayer's image and to its balance
sheet due to the debt Bayer had to take on for the acquisition.
Monsanto has for years been the target of environmentalists over
its genetically modified crops and its weedkillers based on
glyphosate, a chemical.
"The court judgment is another sign that Bayer has probably not
reviewed a decisive part of the acquisition thoroughly enough,"
said Christian Strenger, an individual shareholder in Bayer and a
German expert on corporate governance.
Bayer had to fight hard to get the deal over the finish line,
with regulators forcing the company to shed more assets than
initially planned.
Mr. Strenger has filed a motion ahead of Bayer's annual
shareholders meeting in April calling on shareholders to withhold
their approval of the management board, made up of top executives.
His motion cites among other factors "dramatically increased legal
risks of glyphosate related lawsuits."
Bayer's first major legal defeat came in August, when a jury
held Bayer responsible for a groundskeeper's non-Hodgkin lymphoma.
That verdict, which came barely two months after Bayer closed the
Monsanto acquisition, triggered a downward spiral in Bayer's share
price. The stock in Germany has lost nearly a third of its value
over the past year. Bayer has appealed the August verdict and
pledged a robust defense in future cases.
Tuesday's jury verdict hit hard because Bayer had been pointing
to this second trial as offering a better frame for its argument
that scientific evidence proved Roundup was safe, in part because
the plaintiff presented other health issues that Bayer argued could
have triggered the cancer. The case is the first bellwether trial
scheduled for 2019.
Analysts have hoped Bayer could keep the focus on rational
arguments and scientific evidence -- and away from plaintiffs'
allegations that Monsanto knew about the product's risks but hid
them from the public. Bayer says some 800 studies and regulatory
decisions across the globe assert that glyphosate isn't
carcinogenic.
U.S. District Judge Vince Chhabria had granted Bayer's request
to split the evidence into two phases, with the first phase
focusing solely on whether Roundup and its active ingredient,
glyphosate, are safe.
Jurors at the end of phase one found Roundup was responsible for
the cancer of California resident Edwin Hardeman. Now, the trial
will move into phase two, with jurors hearing allegations about
misconduct before deciding whether to award punitive damages. Bayer
said the trial's second phase "will show that Monsanto's conduct
has been appropriate."
"This now appears to be a damage-limitation exercise," said
Gunther Zechmann, a Bernstein Research analyst who said he fears
the worst.
Bayer's recent efforts to lift investor sentiment -- including a
broad restructuring plan to cut costs and boost profits across
businesses -- have done little to placate investors and analysts
still struggling to put a figure on Bayer's potential payouts.
Bayer set aside 613 million euros ($696.4 million) for defense
costs over the next three years, with a big part expected to go
toward Roundup cases. Bayer hasn't provisioned for any potential
liabilities.
Legal experts said the latest verdict could attract new
plaintiffs. Some analysts said a few more verdicts need to be
handed down before the potential financial impact can be
realistically assessed. Six more trials are scheduled to start this
year.
"The shares will likely remain depressed until there is evidence
of Bayer prevailing in one or more of the six cases to go to trial
in 2019," said Peter Verdult from Citi.
Bayer stock closed at EUR63 on Wednesday, down EUR6.70 on the
day.
Some analysts on Wednesday cut their recommendations on the
stock, assuming a higher risk that the legal battle will end
negatively for Bayer.
Analysts say it is difficult to estimate what kind of impact the
legal woes might have on Roundup sales. Bayer doesn't break out
sales for the products and closed the Monsanto acquisition near the
end of the last growing season. Analysts note many farmers depend
on Roundup because there are few comparable alternative products on
the market.
Markus Mayer, an analyst at Baader bank, said he sees a further
risk in the legal uncertainty: If Bayer's share price sinks to new
lows, Bayer could become a target for activist investors or even a
takeover, he said.
Write to Ruth Bender at Ruth.Bender@wsj.com
(END) Dow Jones Newswires
March 20, 2019 19:50 ET (23:50 GMT)
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