Will Bayer settlement end its Monsanto nightmare?

Bayer has agreed to cough up nearly $11 billion to resolve thousands of US lawsuits claiming that its widely sold Roundup weed killer causes cancer, partly resolving a major problem that has plunged the German chemical and pharmaceutical company into one of the worst crises in its history.

The company said on Wednesday the settlement, which did not contain any admission of liability or wrongdoing, would bring closure to about 75% of the total 125,000 Roundup lawsuits. The settled cases represent about 95% of the cases currently set for trial. As part of the deal, Bayer will pay up to $9.6 billion to settle all the existing cases, including the 30,000 that haven't yet been settled.

The overall sum includes $1.25 billion for resolving any future claims, which will be governed by a class agreement, still subject to court approval.

A part of the sum would be used to fund a scientific panel that would ascertain whether glyphosate — the chemical compound in Roundup — causes cancer, to ensure the Roundup legal troubles are settled once and for all. If the panel determines that glyphosate does not cause cancer, plaintiffs part of the class agreement will be prohibited from filing any future lawsuit against the company.

The settlement marks a rare positive development in recent years for the embattled 157-year-old firm that has seen its shares battered since its ill-fated $63 billion acquisition of US seed company Monsanto and its legal troubles in 2018. Despite a nearly 50% surge from its March lows, Bayer's stock is trading almost a third lower than the level it traded at in 2016, when it was first reported that the company was in talks to buy Monsanto.

The deal is expected to somewhat calm the nerves of investors eager to see the back of Bayer's legal troubles linked to Monsanto so that the company can get on with its strategic priorities. Their frustration with Bayer's handling of the Monsanto acquisition and the ensuing lawsuit tsunami saw them cast a vote of no confidence against CEO Werner Baumann at last year's shareholders meeting, making him the first German CEO to face such an ignominy.

"While this undoubtedly constitutes a large amount of money, we believe that it provides a reasonable degree of finality to the litigation issue, and that it removes a significant overhang on the investment case," Deutsche Bank analysts wrote in a note to clients.

Got off lightly?

Bayer expects to make the payments over the next two years. It plans to finance the deal using cash, future savings, proceeds from the divestment of its animal health unit and by taking on some additional debt.

The company maintains that Roundup is safe and cites findings from dozens of regulatory agencies, including the US Environmental Protection Agency, to back its claim. But it has still agreed to pay billions to bring a "long period of uncertainty to an end," Baumann said.

While the settlement amount is in line with analysts' estimates, some say Bayer may have got off lightly. They cite the significant financial and reputational costs of contesting a huge volume of cases, something Baumann alluded to in his statement.

"It is financially reasonable when viewed against the significant financial risks of continued, multi-year litigation and the related impacts to our reputation and to our business," he said.

By comparison, the amount that Bayer has agreed to pay to each of the 125,000 plaintiffs is less than half of what Merck paid in 2007 to settle claims over its painkiller Vioxx.

Hasty decision

Bayer said it would continue appealing the first three court cases that it had lost in California last year. A verdict on the first case could come in as early as this summer.

The settlement comes just days after a US federal judge shot down the California state government's bid to have cancer warnings on glyphosate-based herbicides, a ruling that Bayer said "reinforces the very arguments the company has made at trial."

"If the three cases still rumbling through the courts end in Bayer's favor, he [Baumann] will face accusations of having squandered shareholders' cash for nothing," Reuters Breakingviews columnist Ed Cropley wrote. "That would compound the two initial sins of the Monsanto acquisition: paying too much and failing to grasp the risk that US juries would side with cancer-stricken litigants taking on a large company."