Many Bayer AG investors didn’t realize just how much litigation risk they were getting when the German company spent $66 billion in June to acquire Monsanto Co., the giant U.S. seed and herbicide maker. A San Francisco jury’s August 2018 award of $289 million to a groundskeeper who blamed Monsanto’s blockbuster weedkiller, Roundup, for his cancer sent shares down the most since 2001. While Bayer won a ruling to cut the award to $78.6 million, more than 8,500 additional plaintiffs are making similar claims. And with a flood of pending lawsuits over waterways contaminated with PCBs and fresh cases emerging over another Monsanto herbicide, dicamba, investors are left to ponder the final cost of Bayer’s increased legal exposure.

1. Why is Roundup such a big target for litigation?

It contains the weed-killing chemical glyphosate, which has become widely used by commercial farmers and home gardeners. Over more than four decades, about 3.5 billion pounds of glyphosate was sprayed in the U.S. The lawsuits were filed after glyphosate was declared a probable human carcinogen in 2015 by the International Agency for Research on Cancer, an arm of the World Health Organization. However, like other regulators around the world, the U.S. Environmental Protection Agency said in 2017 that glyphosate isn’t likely to be carcinogenic to humans at current exposure levels. Monsanto developed Roundup in the 1970s, and then created a multibillion-dollar business around seeds that it genetically modified to resist the chemical.

2. Why was the San Francisco case so alarming to investors?

When Bayer sought to acquire Monsanto, much of the attention was focused on the regulatory obstacles of combining global makers of crop chemicals. But the Aug. 10 verdict in the groundskeeper’s case put a spotlight on the potential risk of litigation sparked by Roundup and other potentially harmful chemicals. Jonas Oxgaard, an analyst at Sanford C. Bernstein & Co., has estimated Bayer may face $5 billion in legal costs and plaintiff payouts as a result of its Monsanto acquisition, which would rank among the biggest ever by a company facing damage claims made by private individuals. This is on top of the litigation of its own that Bayer must contend with, including more than 16,000 lawsuits brought by women who claim they were injured by the company’s Essure birth control device.

3. What’s Bayer’s strategy for limiting its exposure?

Bayer vowed after the Johnson verdict to step up its defense, emphasizing scientific research that shows no link between Roundup and cancer in humans. Even as it pursues an appeal to set aside the Johnson verdict, the company is concentrating on getting wins in federal court in San Francisco, where cases on behalf of more than 9,000 plaintiffs have been collected and the company may stand a better chance of success. U.S. District Judge Vince Chhabria has expressed skepticism about the evidence linking Roundup to cancer, and has structured the second trial in a way that excludes some of the most damning material from a crucial first phase of the proceeding.

4. Where are the next trials happening?

The second trial is scheduled for Feb. 25 in San Francisco federal court. There’s another trial set for March in state court Oakland, California, and one in June in city court in St. Louis, where Monsanto was headquartered for 117 years and Bayer now runs its North American crop-science business. Bayer can’t count on a hometown advantage. Plaintiff lawyers have flocked to the circuit court for the city of St. Louis, which has produced some of the largest verdicts in U.S. product-defect claims. While the U.S. Supreme Court in 2017 made it harder to combine lawsuits in state courts by non-residents, Bayer, as a local defendant, has little chance of blocking the Monsanto trials in St. Louis given recent Missouri court decisions.

5. How big are Bayer’s other Monsanto-related risks?

While Bayer expects glyphosate to remain the world’s biggest herbicide for years, some weeds are growing resistant to the chemical. That’s led to development of genetically modified seeds that can be used in conjunction with another weedkiller, dicamba. However, dicamba can vaporize after application and drift onto nearby fields of non-resistant crops. In 2017, an Arkansas farmer was shot and killed by his neighbor in a dispute over dicamba damage. Scores growers across the Midwest have sued Monsanto over its dicamba product, known as Roundup Ready Xtend Crop System. The farmers are demanding compensation for soybeans, cotton, fruit trees and vegetable crops damaged by dicamba spraying, and they are seeking class-action status for thousands of claims. At least one trial is scheduled for October 2019 in Missouri federal court.

6. What’s Bayer doing about dicamba?

Before the takeover, Monsanto developed new formulations that it said would keep the weedkiller on the plants where it’s been applied, preventing drift onto untreated crops. In October, Bayer won EPA renewal of the registration for its dicamba-based product, XtendiMax with VaporGrip, albeit with restrictions on the chemical’s use. In 2018, U.S. farmers sprayed dicamba on about 50 million acres of soybean and cotton crops. Of that, about 1 million acres of soybeans were damaged by the herbicide. Should litigation further restrict dicamba and related products, Bayer could lose $1 billion in annual sales from a business that is key to expanding the agrochemical businesses it acquired from Monsanto.

7. Why are PCBs that Monsanto made decades ago a problem?

More than a dozen U.S. states, cities or port authorities allege the company is responsible for contaminating their waterways with PCBs, chemical compounds used in transformers, paints, sealants and multiple other products. PCBs were prized for their fire-resistant properties, particularly by defense contractors, but production was banned in the U.S. in 1979 over environmental concerns. The pending suits claim Monsanto knew that PCBs, polychlorinated biphenyls, were toxic to humans and wildlife and could cause contamination far into the future, but hid the risk and continued to make the product. Plaintiffs include the states of Washington, Oregon and Ohio as well as the cities of San Diego, Portland and Seattle.

8. What’s at stake in the PCB cases?

The ultimate bill for these lawsuits, should the plaintiffs prevail, is unknown. The state of Oregon asked for more than $100 million, but the others haven’t provided estimates of damages, including cleanup and rehabilitation costs. The first of seven scheduled trials will probably be in February 2020 in a lawsuit brought by the city of Spokane, Washington. Monsanto has countered that it never discharged PCBs into any waterways, isn’t responsible for dumping by third parties, and that the cities and states waited too long to sue. The plaintiffs contend the PCB contamination is a continuing nuisance, so their claims aren’t time barred. Several judges have agreed, rejecting Monsanto’s motions to dismiss. The lawsuits aren’t claiming any personal injuries caused by PCB exposure. The company settled those cases in 2016 for $280 million.

--With assistance from Lydia Mulvany and Jef Feeley.

To contact the reporters on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net;Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

To contact the editors responsible for this story: Elizabeth Wollman at ewollman@bloomberg.net, Steve Stroth, Laurence Arnold

©2019 Bloomberg L.P.