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Bayer dismissed before the Supreme Court

AThe top management of the Leverkusen-based pharmaceutical company Bayer should not have had high hopes for a legal release, however. Now there is certainty: Tuesday morning, local time, the US Supreme Court announced it would not hear the case of a US cancer plaintiff who blames Roundup for his illness.

The Bayer group, which wanted to reopen the case, was eventually rejected before the Supreme Court. For the Leverkusen-based company, this also means that the end of the lawsuits that the group received with the acquisition of the US seed group Monsanto is a long way off.

Leverkusen’s group was correspondingly disappointed with Washington’s refusal: “The decision undermines the reliability of regulatory decisions for companies because it allows each individual US state to require different instructions for use,” a spokesperson said.

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Also, the US government is doing a legal U-turn. The move away from science-based regulation is met with criticism even in the United States and “could exacerbate the food crisis in troubled times.” Shares in the group plummeted about two percent immediately after Washington’s announcement.

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Another setback: The acquisition of Monsanto, which CEO Werner Baumann planned shortly after taking office in 2016, was originally set to be the big success for Bayer. The group has grown to become number one in the world in the seeds and pesticides sector thanks to the multi-billion dollar agreement.

The legal risks of the takeover massively underestimated

Inspired by the “logic of the deal”, Baumann promised his shareholders a significant increase in value. Instead, the stock price has since fallen a good half below the spate of lawsuits. Many investors therefore still accuse management of massively underestimating the legal risks of the acquisition.

The case of retiree Edwin Hardeman, a cancer patient, in which Bayer was finally found guilty after the rejection of the Supreme Court, is one of the first major lawsuits the German company faced after the acquisition of Monsanto. Hardeman and with him many thousands of other cancer patients in the United States attribute their disease to years of using the glyphosate herbicide “Roundup”. Bayer denies the allegations and points out that supervisory authorities around the world have verified the product and classified it as harmless.

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A French farmer sprays a glyphosate-based herbicide "Summary 720" produced by the agrochemical giant Monsanto, at a rate of 432 grams per hectare, in Piace, north-western France, in a corn field near a wind farm on 23 April 2021. - Two root herbicides, Duald Gold and Spectrum from 1 liter per hectare and a vegetable oil at 0.05 liters per 100 liters are combined with glyphosate and 36 liters of water per hectare.  The vegetation cover was mechanically destroyed, with a "difficult compilation", which in a single step crushes the stems, so that they disintegrate in contact with the ground, the air and the proof.  The corn was sown, then rolled up.  Experimentation with this technique allows you to get out of glyphosate.  (Photo by JEAN-FRANCOIS MONIER / AFP)

Bayer has received a total of 138,000 lawsuits on Roundup products in the past few years and the group has already resolved 108,000 cases. But the end of the flood of lawsuits is not yet in sight. Union Investment fund manager Markus Manns foresees “further possible lawsuits over herbicide glyphosate in the United States”. The expert expressed his disappointment at the verdict: “If it won, Bayer could have released its reserves and had much better planning security,” he said. The fund company is one of the 20 largest shareholders in the group.

However, the defeat in the Supreme Court was not a complete surprise for Bayer. The group prepared a five-point plan last year to reduce the number of future lawsuits as much as possible. Among other things, it provides for damages for some actors. To this end, Bayer had increased existing provisions for future lawsuits by a further 4.5 billion dollars, equal to approximately 3.8 billion euros. “This covers a potential long-term financial risk and in the event of a positive decision by the Supreme Court, the financial situation would be significantly better,” Bayer said at the time.

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In order to further reduce the risk of future legal action, the group also wants to replace glyphosate-containing products in the US consumer market with new formulations without the active ingredient starting in 2023. “This step is solely due to the minimization of legal risks. and in no way reflects any safety concerns “, people in Leverkusen point out, referring to the voluntary nature of the program, which is ready to go at any time:” However, the decision on this depends on important developments in the legal complex , which includes trials and appeals “.

Indeed, the Hardeman case is not the only case Bayer has brought to the US Supreme Court. In March, the Leverkusen-based company also filed a review petition with the Supreme Court in the case of a couple of actors suffering from cancer, arguing, among other things, with the very high fine of two billion dollars, to which the group was initially sentenced.

And if there were more conflicting rulings than US appeals courts, Bayer could try to get the Roundup case heard in the Supreme Court, after all.

Request for approximately two billion euros in damages

But even if the Supreme Court were to actually accept one of these cases, that wouldn’t mean the end of the legal woes surrounding the takeover. The lawsuits are still pending for other Monsanto products. In Germany, investors also accuse Bayer of violating capital market laws in the acquisition of Monsanto and are demanding around two billion euros in damages.

It was once again evident in the spring of this year that Bayer also faces considerable risks from the outside acquisition of Roundup. In March, the Californian metropolis of Los Angeles filed a lawsuit against Bayer and two other companies. The charge: Monsanto is said to have dumped environmentally harmful and possibly carcinogenic polychlorinated biphenyls (PCBs) into rivers until the chemical was banned in the United States in 1979.

In 2020, Bayer accepted a $ 650 million PCB deal with approximately 2,500 cities and counties that went into effect in March of this year. However, Los Angeles had abandoned this process shortly before in order to pursue its own legal appeal. Bayer has already announced that it intends to “continue to defend itself vigorously” in these and other pending cases, including numerous private cases.

Bayer isn’t just under threat of trouble in the United States

Monsanto’s Dicamba herbicide also continues to cause legal problems for Bayer. Last December, the US Environmental Protection Agency (EPA) announced it would evaluate the herbicide to determine if it poses an unreasonable risk to crops. Even before the announcement by the US authorities, Bayer had to face farmers lawsuits against dicamba because the product would be damaged by debris from other damaged fields and parts of the crop. According to the company’s report, Bayer has “reached an agreement to resolve cases” in some cases and amassed $ 300 million in reserves for dicamba lawsuits.

And it’s not just in the United States that Bayer is threatened with trouble. The pharmaceutical group is also facing lawsuits in Germany for the acquisition of the agricultural group Monsanto. Unlike the US, however, this is not about the controversial herbicide glyphosate, but rather the question of whether the Leverkusen-based company should have first informed its shareholders and the capital market of the risk of lawsuits in the US.

Due to the possible violation of ad hoc obligations, the Tilp law firm represents 288 institutional investors as well as private investors. The law firm has estimated the amount of damages at around two billion euros. The court has not yet commented on whether and when the cases will be admitted to the Cologne regional court.

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The deciding factor will now be how well the corporate strategy actually takes hold, progressively leaving the chapter of Monsanto lawsuits behind. In the pharmaceutical sector in particular, Bayer was recently able to score with a number of good news, several analysts recently raised their price targets for the stock. But there are also numerous investors who, disappointed by the weak performance of recent years, continue to ask for the group to be spun off. Such requests benefit above all from the lack of synergies between divisions and from the general trend of the stock market towards group divisions.

This also means: even as Baumann is quickly monitoring complaints about Monsanto products, the next major construction site is already waiting.

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