Bayer AG (BAYN.FRA) swallows bitter $10.5 billion pill in legacy Monsanto litigation

06/24/2020

Bayer AG (BAYN.FRA) rode a rickety roller coaster when the life science company announced it had acquired global ag biotech giant, Monsanto in June 2018, seemingly unaware of just how painful the transaction would be. What happened?

The aspirin inventor’s CEO, Werner Baumann, had the hots for Monsanto since 2016, finally throwing down USD$63 billion for Monsanto in the hopes of building Bayer’s ag chemical business segment into a global leader.

It was a ballsy move on Baumann’s part as Bayer would not only assume Monsanto’s outstanding debt but would also inherit legacy litigation accusing Monsanto of developing a cancer-causing weed killer, Roundup.

Within weeks of closing the deal, Bayer lost the first of three lawsuits attempting to defend the herbicide which saddled the company with damage payments of over $190 million.

Share price plummeted to the point where Bayer’s market cap roughly equaled the Monsanto acquisition price and there was no end in sight as tens of thousands joined in to exact their pound of flesh.

Investors were pissed and financial publications like The Wall Street Journal called the transaction “one of the worst corporate deals in recent memory”.

Bayer had taken on an enormous amount of debt to complete the transaction, ballooning its books from less than €3 billion to well over €40 billion by the second quarter of 2018.

On top of having to divest some of its existing business to satisfy regulators, Bayer also had to cut 10% of its workforce and restructure its operations in order to keep its head above water.

Baumann took one in the teeth back in April 2019 when U.S. District Judge Vince Chhabria ordered the company into arbitration angering shareholders to the point of a non-confidence vote.

Bayer limped along and by March 2020, an investor actually sued the board and top company officials for the “disastrous” deal which they claimed was crushing the company with potentially billions in lawsuits over the herbicide.

Rebecca Haussmann, the investor in question, was out for compensation and punitive damages because the aspirin maker publicly admitted it might have to sell assets, take on unfavorable loans and/or issue new equity to cover costs.

Today, Haussmann’s fears were realized, as a series of agreements were reached that would bring closure to about 75% of the outstanding claims against the company to the tune of approximately $8.8 billion to $9.6 billion.

Bayer also must include an allowance for unresolved claims and $1.25 billion to support a separate class agreement for future potential future litigation.

Share price for the German-based firm climbed on the Frankfurt Exchange following today’s announcement, leaving the drug giant with a market cap of €68.76 billion (USD$77.39 billion) – just a ‘settlement’ more than the all-cash $63.0 billion acquisition of Monsanto.

If there is a lesson to be learned from this, it would be getting bigger at all costs for the sake of getting bigger is a fool’s game. Werner Baumann single-handedly cut Bayer to the heart with his ego-driven non-sensical megalomania and investors will continue to pay for his hubris for years to come.

 

 

–Gaalen Engen

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