“Only hours away” from another jury trial over its weedkiller Roundup, Germany’s Bayer has secured a postponement to allow room for “escalating settlement talks” to continue, reports Laura Kusisto and Ruth Bender in The Wall Street Journal.
This has raised hopes that Bayer may be close to settling claims related to allegations that Roundup causes cancer, which have already caused Bayer to lose three individual cases, leaving it liable for a total of $190.5m in compensation. A fourth adverse verdict could have handed the 42,000 plaintiffs involved so far “additional ammunition in settlement talks that have dragged on for months”.
A settlement won’t come cheap, says Fortune. Experts believe that settling the “tens of thousands” of claims, which could eventually rise to as much as 85,000, could cost around $10bn, with some even putting the costs at $13bn.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
The lower estimate would imply $8bn to resolve current cases and $2bn set aside for future claims, including those related to diseases such as non-Hodgkin’s lymphoma “which can take years to diagnose”. There’s also the problem of trying to simultaneously negotiate with the various groups of plantiffs’ attorneys, “each with a sizable inventory of cases”.
The fact that Bayer’s shares rose by 4% on the news of the postponement suggests there is a risk that shareholders’ expectations “are getting carried away”, says Chris Hughes on Bloomberg. There remains a “real possibility” that the “saga” endures for longer than investors have anticipated if talks between the two sides break down. Indeed, given that Bayer still believes that Roundup doesn’t cause cancer, it could simply decide that it would be better off taking a chance on a trial if an acceptable figure cannot be reached.
The positive scenario
However, if a deal does end up being signed then shareholders could stand to do very well, as the chemical giant currently still trades at a “substantial discount” to its peers. The gap is worth “much more” than the settlement costs being discussed.
Just getting to a valuation matching its cheapest counterparts “would add about €20bn of market value, after deducting the estimated cost of ending litigation”, while a move toward the average of its peer group would see the market value rise even higher.
Shareholders may be relieved at the “fairly modest” settlement, say Ed Cropley and Aimee Donnellan on Breakingviews. Still, they are still entitled to be “hopping mad” at the fact that Bayer got itself into the mess in the first place by buying Monsanto (which originally developed the drug) for $66bn in 2018. A Bayer investor who bought shares when the deal with Monsanto was completed would still have lost nearly 20% of their stake today, while those who invested in other drug companies would have made big profits. Bayer CEO Werner Baumann “has a lot of work to do” to ensure that Bayer’s shares close the gap.
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
The jury's out on the AI summit at Bletchley Park
World governments gathered for an AI summit at Bletchley Park in November, but were they too focused on threats at the expense of economic benefits?
By Simon Wilson Published
Five things not to put in a will
There are many things to consider when writing a will. But what about things NOT to put in a will? We spoke to legal experts who told us about what you should leave out of a will.
By Nicole García Mérida Published
Halifax: House price slump continues as prices slide for the sixth consecutive month
UK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
By Kalpana Fitzpatrick Published
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?
UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
By Marc Shoffman Published
Pension savers turn to gold investments
Investors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
By Ruth Emery Published
Where to find the best returns from student accommodation
Student accommodation can be a lucrative investment if you know where to look.
By Marc Shoffman Published
Best investing apps
We round up the best investing apps. Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go?
By Ruth Emery Last updated
The top funds to invest in - November 2023
Tips Investors are focused on income strategies and FTSE heavyweights. We look at what investors have been adding to their portfolios in the last month
By Vaishali Varu Last updated
The world’s best bargain stocks
Searching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
By Andrew Van Sickle Published
Revealed: the cheapest cities to own a home in Britain
New research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
By Ruth Emery Published