Bayer pays $12bn to put Monsanto liabilities behind it

Bloomberg

Bayer AG’s $12.1 billion settlement to resolve US lawsuits over its flagship weedkiller Roundup and other products offered fleeting relief to investors looking to move on from the legal woes that have hobbled the stock for almost two years.
The shares rose as much as 3.6% in Frankfurt trading after the German company’s move to resolve a trio of major litigation risks that soured its $63 billion purchase of Monsanto — a “big relief,” according Berenberg
analyst Sebastian Bray, especially because it encompasses litigation beyond Roundup.
Getting past the legal drama is a top priority for Chief Executive Officer Werner Baumann, but the milestone settlement left open the potential of more lawsuits. Bayer still faces about 30,000 unresolved cancer claims that could cost billions, and lawyers vowed to keep pressuring the agriculture-chemicals giant.
“If Bayer and its investors thought the Roundup litigation was wrapped up in a nice, neat ball with this settlement, they are sadly mistaken,” said Tom Kline, a Philadelphia-based plaintiffs’ lawyer who won an $8 billion verdict against Johnson & Johnson last year over one of its anti-psychotic drugs. “We are working hard getting these cases in and ready for trial.”
Bayer announced settlements that included as much as $10.9 billion for Roundup, the embattled weedkiller inherited from Monsanto, $820 million for toxic-chemical pollution and $400 million related to damage from dicamba, another herbicide.
The deal includes agreements to end only about 95,000 of the 125,000 lawsuits claiming Roundup caused cancer. The others refused to settle, and the number of cases is growing. Last week, attorney Fletch Trammell filed 13 suits on behalf of kids who developed non-Hodgkin’s lymphoma after being exposed to the weedkiller in backyards, parks and playgrounds.
“The settlement announcement feels like Bayer is trying to stop a gigantic problem by putting its finger in the proverbial dam,” said Jason Itkin, a Houston based lawyer who won a $70 million verdict against J&J last year. “Every day, new people are diagnosed with Roundup-induced cancer. There will be thousands and thousands of
future cases because Bayer is currently still selling this dangerous product.”
Former Roundup users blame glyphosate for their non-Hodgkin’s lymphoma and other cancers. The Leverkusen, Germany-based company denies glyphosate is a carcinogen, a position backed by the US Environmental Protection Agency. A federal judge ruled earlier this week that California officials can’t force companies to place warning labels on glyphosate-based products.
Bayer faced a surge in new lawsuits last year after it lost several US jury trials, and investors issued a rare rebuke to Baumann last spring. Some, including Elliott Management Corp., urged the company to seek a comprehensive settlement.
Bayer executives said the deal shouldn’t affect the company’s credit rating or dividend policy and that paying down its large debt load from the Monsanto transaction remains a “high priority.” Payments can be funded with cash on hand, future free-cash flow, the sale of Bayer’s animal-health unit and potentially by issuing bonds, officials said.
Still, the cost of resolving most of the litigation will slow the company’s ability to pay down debt, wrote Moritz Melsbach, an analyst for Moody’s.
Under the terms of the Roundup settlement, Bayer will set up a $1.25 billion fund to cover future cancer claims. That money will also be used to provide financial assistance to struggling cancer patients and support research into whether the weedkiller’s active ingredient is a carcinogen, the company said.
Individual payouts may range from several hundred thousand dollars per case to less than $50,000.
The accord allows Bayer to continue selling Roundup in the U.S. for use in backyards and farms without any safety warning, and plaintiffs’ attorneys who settled their case inventories agreed to stop taking new Roundup clients.