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Litigation

Company performance in the crop division exceeded expectations in the final months of 2018. However, despite adjusted EBITDA rising 2.8% to €9.5bn and sales increasing 13% to €39.6bn, the acquisition of Monsanto last year tarnished Bayer’s overall results. Charges related to the Monsanto deal led to a drop in net earnings of 78% to €1.8bn together with 11,200 lawsuits. Allegations have been made that Monsanto’s glyphosate-based weed killers - Roundup and Ranger Pro - cause cancer, in spite of Bayer’s claims to defend glyphosate as a safe product.

The Financial Times wrote in January 2019 that cost-cutting measures including the elimination of 10% of the combined group’s total workforce have been made to regain the favour of investors. Some investors believe that the company will have to split its divisions into standalone companies in order to survive but there is a positive consensus among investment analysts that the company will continue to outperform.

President of Bayer’s crop science division, Liam Condon, is confident that the acquisition was the right choice made with due diligence. Even with these litigations, Bayer has seen major returns in the crop section which established a 49% rise in sales from €9.6bn in 2017 to €14.3bn in 2018. Bayer continues to be the market leader and has the leading digital agricultural platform.

From an ethical perspective, there will always be objections to deals like the combination of Bayer and Monsanto as they may be working against the overall benefit of the world community. Bayer purchased Monsanto to gain the market-leading line in GM crop seeds designed to resist strong pesticides like Roundup. In spite of this benefit for farmers, the seeds are engineered to last one growth cycle (a “terminating seed”) and with legal and political powers they have captured over 90% of the market in major crops such as the soybean. There are also serious complaints made by farmers about the herbicide damage to neighbouring non-resistant crops.

It is important to consider, however, that it would be difficult to raise funds for future innovations without creating disruptive products such as these which are innovative, original and solution-focused. The motive for profit and recovering investment is the main incentive for entrepreneurship and innovation in a capitalist society.

We present below our key improvements for Bayer’s overall sustainability, particularly in view of the integration of the acquired agriculture business and the impact it has on the enterprise.

• Bayer’s legal department will continue to recognise, estimate and account for the expected claims in the coming years. Analysts expect that Bayer may face $5 billion in legal costs and plaintiff payouts as a result of the Monsanto acquisition. Liabilities as a result of litigations from another product, dicamba, which could cause a loss of $1 billion in annual sales from the agrochemical business need to be accounted. The other divisions may also be liable for claims against the company’s products such as the 29,400 users claiming injury by the Essure birth control device.
• Efficiently use shareholders’ funds to maintain confidence and thereby business sustainability and improve earnings per share to gain the favour of sceptical investors.
• Adoption of more ethical practices and improving employee satisfaction and thereby the company’s HR reputation. Subsequent to the Monsanto acquisition, 12,000 employees were eliminated and employee satisfaction had dropped compared to last year. Engaged employees will drive business results. This will be achieved by a focus on a culture of contribution and accomplishment, better support in difficult times and multiple-level feedback.
• Improving the quality of future acquisition through due diligence and achieve a proactive approach to issue management as opposed to defensive.
• Allowing full public access to and bringing further attention to safety studies which disprove claims. The California court issued a landmark ruling which set fears in company investors and the trust among both consumers and stakeholders must be regained. Again, a proactive strategy will stand Bayer in good stead while avoiding the negative cycle of a reactive narrative - a reputation which Monsanto had acquired.
  

Negative publicity remains after lawsuits are closed, therefore avoiding the later stages of litigation and reaching settlements will be beneficial.