Two months after clinching its $66 billion purchase of Monsanto Co., Bayer AG faces a protracted legal battle over the U.S. company's Roundup weedkiller -- a prospect that wiped more than $11 billion off the German conglomerate's market value.
Bayer's shares plunged the most in almost seven years after Monsanto was socked with $289 million in damages Friday afternoon in the first trial over claims that the herbicide causes cancer. Now a deal Bayer pursued to keep pace with DowDuPont Inc. and China National Chemical Corp. is turning into a potentially expensive quagmire.
Trading in Germany, Bayer shares dropped 11 percent to close at $25.28.
The verdict in favor of a California school groundskeeper who said exposure to Roundup caused his non-Hodgkin's lymphoma -- which Bayer denies -- is just one of thousands of cases related to the weedkiller that are working their way through the courts. If more go against the German company, the costs could be "ruinous," Sanford C. Bernstein analysts led by Jonas Oxgaard said in a note.
Bayer said it will appeal, and U.S. jury awards against companies are often overturned or reduced. Still, the shares fell as much as 14 percent as investors were reminded of a previous legal debacle, when the company paid more than $1.1 billion to settle suits over the heart drug Lipobay in 2005.
"Investors might worry that this will become a 'Lipobay 2.0,'" said Markus Mayer, an analyst with Baader Bank AG.
Bayer's portfolio also includes such household brands as Aleve and Alka-Seltzer.
Bayer closed its acquisition of Monsanto in June after a two-year antitrust review. Despite disposal of some of its businesses to BASF SE, it emerged as the biggest seed and agricultural chemicals maker in the world, alongside its drugmaking operations.
The reliance of the U.S. company -- and now, its German acquirer -- on Roundup extends far beyond just selling it as a weedkiller. Monsanto genetically engineered the DNA of corn, soybeans and other crops to make them resistant to Roundup; it now makes more revenue from seeds and traits than it does from herbicide.
Roundup, introduced in 1974 and based on a chemical called glyphosate, has long been controversial. While it became the world's most popular and widely used herbicide, the question of whether it causes cancer has been hotly debated by environmentalists, regulators, researchers and lawyers -- even as Monsanto has insisted for decades that it's perfectly safe.
"More than 800 scientific studies and reviews -- and conclusions by the U.S. Environmental Protection Agency, the U.S. National Institutes of Health and regulatory authorities around the world -- support the fact that glyphosate does not cause cancer," Monsanto Vice President Scott Partridge said in a statement Friday.
Jurors awarded Lee Johnson, the groundskeeper, $39 million for his losses and $250 million to punish Monsanto after finding it liable for a design defect and failing to warn of Roundup's risks.
Working for a school district in Benicia, Calif., about 40 miles east of San Francisco, Johnson mixed and sprayed hundreds of gallons of Roundup. He was diagnosed with cancer in 2014, and in July 2017, after chemotherapy and other treatments, his oncologist gave him six months to live. The gardener's lawyers argued that his exposure, including accidents that soaked him from head to toe in Roundup, caused his cancer.
The trial was an important test of the evidence against Monsanto and will serve as a template for litigating thousands of other claims over the herbicide. If the litigation generates other large verdicts, it could have a material impact on Bayer's bottom line, said Chris Perrella, an analyst for Bloomberg Intelligence.
"The jury's verdict is just the first step in this case," Bayer said in a statement on Monday. The German company is due to begin integrating Monsanto's operations into its own later this month.
In closing arguments, Johnson's lawyer, Brent Wisner, told the jury that Monsanto scientists knew of the cancer risk posed by Roundup as far back as the 1970s, but failed to inform the public and instead engaged in a "deliberate effort to distort the truth" as the weedkiller generated hefty returns.
"Despite the Environmental Protection Agency's failure to require labeling, we are proud that an independent jury followed the evidence and used its voice to send a message to Monsanto that its years of deception regarding Roundup is over and that they should put consumer safety first over profits," Wisner said in a statement after the verdict.
Monsanto argued that the type of cancer Johnson contracted takes many years to form. The short period between Johnson's first exposure in 2012 and his diagnosis in 2014 made any connection between his contact and the disease impossible, according to the company.
"They're going to appeal, and we're going to have to see what happens then," said Ulrich Huwald, an analyst with Warburg Research in Hamburg. Even if Bayer doesn't face similar verdicts in other cases, the company may need to pay out settlements. "As the northern Germans say, 'In court and on the high seas, you're in God's hands.'"
Information for this article was contributed by Gabriella Lovas, Chitra Somayaji, Jade Cano and Chris Vellacott of Bloomberg News and by Rachel Siegel of The Washington Post.
Business on 08/14/2018