Bayer AG hoped it could rely on science to establish the safety of its Roundup weedkiller. But it has clearly been no match for a good lawyer after a jury awarded more than $2 billion in damages to a couple who claimed the herbicide contributed to their cancer.
The verdict, the third in potentially thousands of cases involving the glyphosate-based herbicide, is the starkest reminder yet that the German life sciences group gravely miscalculated the risks in acquiring the product’s maker, Monsanto Co., last year.
Bayer stresses there is no read-across from this particular case to others. The damages here are off the scale compared with other personal injury awards. It’s possible they will be cut on appeal, as has happened before. Punitive damages in the first adverse trial verdict were cut from $250 million to $39 million.
Still, the company’s market value fell by $1.6 billion on Tuesday morning. The question for investors is whether the costs of a grand settlement of all Roundup claims and any deterioration in the value of its future glyphosate business exceed the $42 billion wiped off the group’s market value since litigation turned sour in August. UBS Group AG analysts say the current valuation assumes a settlement topping 10 billion euros ($11 billion), the withdrawal of Roundup, plus a significant conglomerate discount.
The case again highlights the difference between science and the law. Bayer says Roundup is safe when used as directed, citing a recent study by the U.S. Environmental Protection Agency and 40 years of prior scientific data. It accuses the plaintiff’s lawyers of cherry-picking evidence and drawing on an unfavorable World Health Organization assessment which, it says, conflicts with scientific consensus.
That’s the snag with lawyers — they can be selective and persuasive. Bayer is a chemicals company, and a foreign one at that. It isn’t going to cut a sympathetic figure. Any assessment of the legal risks of buying Monsanto, itself hardly a popular name with the public, should have taken all these factors into account.
Bayer has previously said its management board assessed these threats using the expert opinion of a U.S. law firm. At the time the deal was agreed in September 2016, the number of glyphosate-related lawsuits pending was only about 120, and the courts had yet to rule on the initial merits of these cases. It’s still not clear whether the board was right to draw the conclusions it did from that private advice.
Other foreign companies mulling acquisitions of U.S. targets will surely be more hesitant now. They will have to weigh litigation risks even more heavily when deciding what price to pay.
Bayer’s latest setback doesn’t change the fact that jettisoning the current management would likely weaken its position. But it adds to the pressure. The stock price has fallen 10% since shareholders scored a protest vote against the board at last month’s annual meeting. Absent a recovery before the next gathering, the pressure for change will probably become unbearable — and it will fall on the head of supervisory board chairman Werner Wenning.
If buying Monsanto was about bulking up Bayer to avoid being taken over, the strategy looks looks now to have backfired. It may only have made it more affordable to a predator once claims are settled. Right now, Bayer has plenty of scientists; what it needs most is the best attorneys it can lay its hands on.
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Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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