What does one of the worst corporate deals in modern history look like? In Bayer’s Monsanto takeover, it means the value of an entire company has gone poof.
Bayer acquired Monsanto for $63 billion in 2018 after a tough buyout battle and intense antitrust scrutiny. The German conglomerate’s market cap in Frankfurt today is close to that dollar amount—and that’s after rumors of an $8 billion Roundup settlement drove up its shares by more than 15% in early August.
At a 30% loss of share value since it closed, the deal stands as one of the worst, sitting alongside AOL’s merger with Time Warner and Bank of America’s acquisition of Countrywide, The Wall Street Journal has found.
The Monsanto takeover, championed by CEO Werner Baumann, sure boosted Bayer’s crop science business. But the original idea was that it wouldn’t hamper the company’s ability to make investments on the pharma side, which has been Bayer's growth engine for years.
The two firms cut a deal in September 2016 after Bayer raised its offer several times. But antitrust pressures delayed the takeover, and to please the U.S. Justice Department, Bayer ultimately agreed to sell off $9 billion worth of assets.
But in the meantime, lawsuits claiming Monsanto’s Roundup weedkiller caused cancer were advancing—and Bayer would soon feel their sting.
Last August, a California state jury sided with the plaintiff and ordered Bayer to pay $289 million in damages. Even though the judge later lowered the payment to $78.5 million, that first loss worried investors and Bayer directors, WSJ reported, citing people close to the top execs.
On top of the trial defeat, concerns about Bayer's buyout-related debt resurfaced. Analysts pointed out Bayer’s pharma pipeline was too thin to fill the gap once its best-selling drugs—blood thinner Xarelto and eye drug Eylea—lose patent protection starting in 2023. And thanks to the Monsanto deal, the company didn’t have enough cash to pull off any major pharma deals.
Facing investor pressure, Baumann’s management team last year unveiled a major restructuring designed to save €2.6 billion in annual costs. And since then, the company has jettisoned sun care line Coppertone and foot care brand Dr. Scholl’s, and it just inked a deal to sell its animal health business to Elanco for $7.6 billion.
Despite the overhaul plan, shareholders were still unhappy with Baumann’s leadership, especially in the context of the mounting lawsuits that came with Monsanto. When it came to Bayer’s annual meeting in April, 55.5% of angry shareholders cast a rare no-confidence vote in Bayer’s management. And for the supervisory board led by chairman Werner Wenning, who also backed the Monsanto deal, about a third of investors voted disapproval. By WSJ’s recount, those votes in the five years from 2014 to 2018 favored Bayer's leadership team by more than 90%.
Bayer has succeeded in cutting two more Roundup damages awards, just as the sheer number of lawsuits continued to rise and reached 18,400 as of July 11.
In early August, Bloomberg reported Bayer was proposing to pay as much as $8 billion to settle all those suits. The rumor helped pull Bayer’s stock out of a seven-year low in June, according to WSJ, though the mediator since issued a denial.
Meanwhile, Bernstein analysts are calling for a quick settlement so that Bayer can focus on its business. One of the long-term remedies they proposed is a further two-way split between the pharma and crop business.