Bayer AG slumped after a second major defeat in U.S. litigation over claims that its Roundup weed killer causes cancer, shaving almost $8 billion from its market value and raising the likelihood of a costly settlement.
The legal woes Bayer inherited with its acquisition of Monsanto Co. have hammered the company’s share price, which has dropped almost 30 percent since the $63 billion transaction was clinched in June, even as the company insists that the active ingredient in the herbicide is safe. The stock fell another 12 percent to 61.1 euros in Frankfurt on Wednesday.
The German company lost the first phase of a jury trial in San Francisco in the case of a man who sprayed the herbicide on his property for decades and said it caused his non-Hodgkin’s lymphoma. It follows a separate California ruling in favor of a former school groundskeeper with cancer last year. Damages in that case were eventually reduced by a judge to $78.6 million.
The latest ruling suggests Bayer is “the underdog in many of the reported 11,200 cases pending across the U.S.,” Holly Froum, a legal analyst at Bloomberg Intelligence, wrote in a report. “Absent settlement, many cases over Bayer’s Roundup weedkiller could go to trial.” She estimated the settlement value of all cases at more than $5 billion.
The trial now moves to a second phase to determine liability and damages. The next stage, starting Wednesday, will be a steeper climb for the defense: jurors will hear evidence, including damaging emails, that the company manipulated public opinion to bury health concerns and promote sales of the bestselling herbicide.
Bayer has no provision set aside for legal liabilities related to roundup. Even so, a settlement at $5 billion “would be a big relief for the markets,” said David Evans, an analyst at Kepler Cheuvreux. “There’s a lot more than $5 billion being factored into the share price.”
Chief Executive Officer Werner Baumann has worked to restore investors’ confidence, announcing a restructuring and reporting better-than-expected earnings growth last quarter, but those efforts could easily be undone by concerns over Roundup and the health impact of its active ingredient glyphosate, said Markus Mayer, an analyst at Baader Bank AG.
A further decline in the share price that would bring it close to 60 euros makes the company vulnerable to a potential takeover or a breakup, according to Mayer. One shareholder activist is already involved: Billionaire Paul Singer’s Elliott Management Corp. has built a stake and wants management to evaluate breaking Bayer into separate pharmaceutical and crop chemical companies, according to people familiar with the matter.
Bayer said moving to the next phase of Edwin Hardeman’s suit against the company in San Francisco has no impact on future cases because each one has its own factual and legal circumstances.
“We are disappointed with the jury’s initial decision, but we continue to believe firmly that the science confirms glyphosate-based herbicides do not cause cancer,” the company said in a statement. “We are confident the evidence in phase two will show that Monsanto’s conduct has been appropriate and the company should not be liable for Mr. Hardeman’s cancer.”
The trial in San Francisco federal court is structured more favorably for Bayer than the first one last summer. In that case, a California state court jury awarded a former school groundskeeper damages eventually reduced by a judge to $78.6 million.
A third Roundup trial begins this month in California state court in Oakland, where allegations about Monsanto’s role in research and regulation will be permitted. Alva and Alberta Pilliod, in their 70s, invoked the same California law that allowed the school groundskeeper to expedite his trial. The law gives scheduling preference to people who are ill.