Bayer has said it intends to “defend itself vigorously” in thousands of lawsuits that claim its Roundup weedkiller causes cancer. But that harsh tone has softened, increasing the possibility that a settlement could be near.
The German company has hired an independent lawyer to advise its supervisory board on the Roundup litigation and set up a special committee to oversee it.
“The supervisory board recognizes the negative effect the litigation uncertainty has had on the stock price and stakeholder perception and is determined to help the company decisively but prudently advance the matter,” Bayer said in a statement. Besides the ongoing litigation, it also “looks forward to constructively engaging in the mediation process,” the company said.
Investors soon applauded the moves, sending Bayer’s stock in Frankfurt up 8.7% Wednesday, which marked its biggest daily gain in a decade, Reuters reported. The steps are widely interpreted as a sign that a settlement could be on the way.
“Ultimately, we believe today’s announcement makes a settlement more likely,” Bernstein analysts Gunther Zechmann and Wimal Kapadia said in a Thursday note to clients. The analysts just recently called on Bayer management to settle the mounting cases and stop past practices of “campaigning” to defend the chemical.
Billionaire Paul Singer’s Elliott Management, which holds €1.1 billion ($1.25 billion) in Bayer shares, also said the new development could help resolve uncertainty around the litigation and lead to settlements, according to Reuters.
The Bernstein analysts noted that the external lawyer, John Beisner, previously represented Merck & Co. in its Vioxx litigation and negotiated a settlement with plaintiffs claiming the drug caused their heart attacks.
But unlike the Vioxx case, where Merck pulled the drug off the market, the Bernstein team argues Bayer's goal “should be arriving at a workable solution that continues to enable use.” Marks Manns, a fund manager at Union Investment, one of Bayer’s largest shareholders, also cautioned that he doesn’t want “a settlement at all costs,” as quoted by Reuters.
Unhappy with how management has handled the Roundup mess, investors cast a rare vote of no confidence in Bayer management at its annual general meeting in April.
The situation sure doesn’t look good for Bayer. Aside from the sheer number of suits—13,400 in April, and growing—Bayer lost a California state trial and a federal bellwether trial. Both resulted in multimillion-dollar damage awards to the plaintiffs. Currently, Bayer’s share price reflects a settlement of $33 billion, or $2.3 million per claim, the Bernstein analysts said, adding that “greater disclosure would make investors more comfortable with the ultimate risk faced.”
Roundup is just one headache for Bayer, too. Both Bernstein and Elliott have called for a pharma-crop business split at the German conglomerate, even though the company is already in the process of hiving off its animal health franchise. Zechmann and Kapadia have argued that the conglomerate structure is dragging down Bayer's stock and a split-up could restore the pharma division to trade at fair multiples.