Bayer’s Monsanto mess

German giant Bayer has made a pig’s ear of buying the US biotech Monsanto: the stock is wilting amid legal trouble over a weedkiller. Matthew Partridge reports.


A weedkiller that's destroying market value

"Bad news for Bayer," says James Moore in The Independent. Last week, a California jury found that Monsanto, the US biotech that the German chemical giant bought for $66bn last year, had "acted with malice or oppression" by not being honest about the health risks of one of its products, a weedkiller called Roundup. The court has awarded a cancer victim $289m in damages. While Bayer is likely "to throw everything it can" at ensuring it wins on appeal, this is the second Roundup case that has gone against it. In addition to the potential legal liability, Bayer could lose billions of future sales of Roundup, one of the world's most commonly used agro-chemicals.

Bayer may believe that Roundup is safe and US courts will ultimately agree, says Tobias Buck in the Financial Times. But investors are clearly rattled. Since the first negative court verdict on Roundup, in August 2018, the group's shares have fallen by more than a third, wiping almost €25bn from its market value. They have "plenty of reason to be glum" given the "ever-growing" list of Roundup cases pending in US courts: 11,200 at the latest count.

While Bayer has clearly blundered, there's some evidence that the market has overreacted, says Brooke Sutherland on Bloomberg. Most experts reckon that a settlement of $5bn to $6bn is on the cards. Such an agreement would make the fall in its share price seem "overdone". Still, "the snowballing criticism of Roundup risks undermining the strategic logic of a combination designed to capitalise on growing demand for productivity-boosting crop-control products".

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A lousy merger

It's not just the strategic logic that is in question here, says Barron's. Bayer'sacquisition of Monsanto "is a candidate for the pantheon of truly terrible mergers-and-acquisitions deals... it violated nearly every rule." Not only did it ignore the legal risk, but Bayer bought at the worst possible time, with consolidation in the agricultural industry forcing it to "keep raising" its offer. At the same time, the "tortuous" regulatory approvals process resulted in Bayer selling $9bn worth of assets, culminating in 12,000 job cuts and the loss of $300m a year in synergies.

Further change could be on the horizon, says Ruth Bender in The Wall Street Journal. The latest management moves, which included a broad restructuring plan to trim costs and boost profits across the group, "have done little to placate investors and analysts". Indeed, one investor has already filed a motion in advance of Bayer's annual shareholders' meeting next month that calls on them to withhold their approval of the management board. There could be worse to come. Analysts are warning that if Bayer's share price sinks to new lows, then before too long the company could become a target for activist investors "or even a takeover".

Uber takes over Middle Eastern rival Careem

Uber may be about to embark on its "blockbuster" initial public offering (IPO) that could value the company at more than $100bn, say Shannon Bond and Simeon Kerr in the Financial Times. But that hasn't stopped it paying $3.1bn for Dubai-based rival Careem. Provided regulators agree to the tie-up, Uber will pay $1.4bn in cash and $1.7bn in shares for its strongest competitor in the region, with Careem to be run as a fully owned subsidiary of Uber. The news comes as Uber has been "spending heavily" in markets including the Middle East to "subsidise rides and win market share".

The deal should give a boost to the forthcoming Uber IPO, say Karen Kwok and Gina Chon for Breaking Views. Not only does it show that the group "is still willing to spend to grow", but the reduced competition also means "one less thing to worry about". It is also a smart move because "the Middle East is a huge growth market: 40% of its population is below the age of 25. The deal is also a win for Careem's investors: they secure "a partial exit at a good price at a time when Careem would struggle to list, given its lack of profitability and the dearth of funds in the region".

This deal has made it "increasingly clear", says Theodore Schleifer in Recode, that "to bet on Uber is to bet on a global ride-hailing spoke model in which... Uber... is merely the hub". Uber also owns 37% of Russia's Yandex, 28% of Southeast Asia's Grab and 20% of China's Didi Chuxing. The stakes in those rivals bolster Uber's value. But how will "those ride-hailing juggernauts" do as standalone entities when they go public themselves?

City talk

Ride-hailing app Lyft looks set to price its shares above the previously announced target range of $62 to $68 for its initial public offering (IPO), reflecting robust demand. This implies a market value of more than $23bn. Completely bonkers, says Len Sherman in Lyft lost $1bn last year and still can't "explain why it can become profitable when Uber can't, despite Uber's five times greater scale". The whole ride-sharing model is flawed given "low barriers to entry... and regulatory and legal risk... another age of irrational exuberance" is here.

Apple may have pulled out all the stops in its "extravagant unveiling" of AppleTV+, its new video content streaming service, says Elizabeth Winkler in The Wall Street Journal. Yet it "looks a lot like" Amazon Prime: a mix of original and partnered content "curated by a tech company that has decided to exploit mass desire for incessant entertainment. Apple's service almost certainly won't be free." What's more, Apple is late to the streaming party and Netflix is the leader of the pack by a long way.

Late last week it was revealed that Groupe PSA (Peugeot) wants to secure a $45bn merger with Fiat Chrysler Automobiles (FCA) in order to "deliver big savings capable of funding the arms race over electric and self-driving vehicles", says Reuters. However, it's hard to see the benefits, especially for FCA . It bought Chrysler specifically in order to break into North America, making a merger with Peugeot, which gets 80% of its sales from Europe, a "step backwards". Meanwhile, any job losses "would send Italy's populist government into a tizzy" and further "galvanise France's yellow vest' protests".

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri