With Each Roundup Verdict, Bayer’s Monsanto Purchase Looks Worse

(Bloomberg Businessweek) -- In July 2018, a baby-faced lawyer named R. Brent Wisner seized the opportunity to ask his legal opponent a question that had been bugging him. Through a series of accidents, Wisner had found himself co-leading a monumental case against Bayer AG, the German chemicals giant that had recently acquired Monsanto for $63 billion. Two weeks into the heated courtroom battle, he felt fairly certain he was going to win big and inflict lasting damage on the company. So he wanted to know: Why on earth wasn’t Bayer settling?.Wisner’s client, a 46-year-old former school district groundskeeper from California who was dying of cancer, said his illness had been caused by spraying hundreds of gallons of Monsanto Co.’s weedkiller, Roundup. Wisner’s team had compiled hundreds of documents backing the claims and demonstrating that Monsanto may have acted in bad faith, cozying up to officials in the U.S. Environmental Protection Agency and undermining scientists who raised questions about the safety of the company’s prized herbicide..When Wisner found himself alone in a courtroom with two of Bayer’s lawyers, he asked them, “What are you doing? Why are you trying this case?” To clarify the question, he added, “We’re going to win, and it’s going to make it much harder for you to settle cases in the future.”.Bayer’s lawyers were unfazed. “They said, ‘Oh, Brent, you know, there’s winning, and then there’s winning. And if you think you’re going to win a couple million dollars, and you think that’s a big win, that’s fine—but we don’t think you have a chance at getting a very big verdict here,’ ” Wisner recalls. Shocked, he told them, “I don’t know what you’re telling your client, but I’m going to be asking for a stupid amount of money.” (The lawyers for Bayer say they have no recollection of the conversation.).Bayer investors probably wish the company never let that case get to trial. Or better yet, never bought St. Louis-based Monsanto in the first place. After a four-week trial, a San Francisco jury found that Roundup had caused Wisner’s client’s non-Hodgkin lymphoma, and awarded him $289 million. (The figure was later reduced to $79 million.) News of the judgment wiped $10 billion off Bayer’s market value in a single day and opened the door for countless more Roundup lawsuits..Over the following nine months, Bayer lost two more trials in the Bay Area. In the most recent, Wisner’s team represented a California couple who used Roundup on several properties during their almost 50 years of marriage before both contracted non-Hodgkin lymphoma. This time the jury awarded the plaintiffs $2 billion, the largest verdict in the U.S. this year for a product-defect claim. When a Bayer lawyer asked one juror what the panel needed as proof that the Monsanto product was safe, the juror replied, “I wanted you to get up and drink it.”.A judge later cut the award to $87 million to comply with legal precedents, but refused to throw out the verdict as Bayer requested. Bayer has appealed the verdicts against it. Now thousands more complaints are being filed each month, and the number of plaintiffs lining up to sue Bayer has climbed past 18,400. Meanwhile, the company’s shares have tumbled about 33% since the deal closed, leaving its market value at $68 billion, barely more than it paid to buy Monsanto..Analysts estimate that settling all the U.S. lawsuits could cost from about $2.5 billion to $20 billion. Meanwhile, Wall Street, retail investors, farmers, Bayer employees, and just about everyone else is wondering, What was the company thinking? Didn’t Bayer’s leaders anticipate trouble when they decided to acquire Monsanto, long ranked by the Harris Poll as one of America’s most hated companies? Did they truly believe the Roundup litigation wouldn’t be a problem? And can Bayer survive this self-inflicted wound?.“This whole thing could have been tucked away neatly, quietly settled for less than a billion dollars three years ago—even half of that,” Wisner marvels. “What I’ve seen in this entire litigation from the very beginning is a level of hubris that is staggering.”.The man responsible for acquiring Monsanto is Werner Baumann, Bayer’s chief executive officer. Fifty-six years old, trim, cleanshaven, with close-cropped silver hair and rounded glasses, Baumann was just two weeks into his tenure as CEO when he flew to St. Louis in May 2016 carrying a portable printer. At his hotel, he finalized an official letter before taking a taxi to Monsanto’s headquarters to make a secret bid..At the time, Bayer rivaled software giant SAP SE as the most valuable German company on the Frankfurt stock exchange. The 156-year-old industrial titan, best known for inventing aspirin, has long enjoyed a reputation for stability, transparency, and scientific innovation. Its headquarters, just north of Cologne in the sleepy midsize city of Leverkusen, are marked by a 164-foot-tall illuminated logo known as the Bayer Cross. It recently sold the sprawl of chemical plants along the Rhine River, but it still owns Bayer Leverkusen, a soccer team started for employees in 1904 that now competes in Europe’s Champions League, along with the team’s 30,000-seat stadium. Other holdings around town also include an 800-seat “rest and recuperation house” that hosts theater productions and concerts by the company-sponsored Bayer Philharmonic Orchestra, plus restaurants, a four-star hotel, and an 80,000-bottle wine cellar..Until the early 2000s, Bayer operated as an unfettered old-school conglomerate with as many as 30 separate businesses, including pharmaceuticals, animal health, plastics, rubber, basic and fine chemicals, and photographic products. Then it haltingly began bending to modern investors’ demands to sharpen its focus. In 2014, Baumann’s predecessor, Dutch-American Marijn Dekkers, christened Bayer an “integrated life science company” dedicated to caring for plants, animals, and people, and spun off the company’s material science business. Baumann helped oversee the multibillion-dollar takeover of Berlin-based Schering AG and, after becoming Bayer’s chief financial officer, the purchase of the consumer health division of Merck & Co..By 2016, Bayer was facing a quandary. The blockbuster cardiovascular and eye-care drugs that lifted it to record valuations had less than a decade left of patent protection, and the pipeline for new medicines was drying up. Meanwhile, its agriculture division was facing heightened competition because of consolidation within the industry. Dow Chemical Co. had recently paired up with DuPont Co., and China National Chemical Corp. had swooped in for Switzerland’s Syngenta AG..Within Bayer, some worried that a foreign entity might orchestrate a hostile takeover and split up the empire. To strengthen the company’s portfolio, Baumann began contemplating buying Monsanto—a possibility he’d been researching since at least 2011. His superior, Dekkers, was widely reported to be against the move. But Baumann had an unusual amount of clout and the backing of his mentor, Werner Wenning, a lion of German industry who was Bayer’s CEO in the 2000s and has chaired the supervisory board of directors since 2012..Together, “Big Werner” and “Little Werner,” as the duo are often called, concluded that acquiring Monsanto made sense. Bayer had long specialized in chemicals used by farmers to fight fungus, weeds, and insects, but it lacked a first-rate seed business. Monsanto had dominated the seeds sector ever since it revolutionized the industry in the 1990s by introducing corn, soybean, and cotton seeds genetically modified to withstand glyphosate, the active ingredient in Roundup..Buttoned-up in style and manner and extremely soft-spoken, Baumann doesn’t seem the type to relish wading into the cultural wars surrounding Monsanto. He grew up on a working-class street in western Germany in the city of Krefeld, about an hour’s drive north of Leverkusen, where his parents ran a bakery on the ground floor of the building where the family lived. He studied economics at the University of Cologne, thinking he’d become a tax auditor, accountant, or consultant. Instead he landed a job with Bayer in 1988 and never left. Over his three-decade climb, serving stints in the U.S., Spain, and Germany, he impressed bosses—none more important than Wenning—with his willingness to work endless hours and his ability to master complicated subjects..But Baumann has been criticized for lacking emotional intelligence, and some say this shortcoming may have affected his judgment concerning Monsanto. “Figures are true or false, good or bad,” says Marc Tüngler, managing director of DSW, a German association that advises small and institutional investors. “With Monsanto, it’s not just about good or bad figures. It’s about taking risks, it’s about empathy, it’s about communication and explaining.”.Just weeks before assuming Bayer’s top post, Baumann assured investors and journalists that he had no plan for doing anything “revolutionary.” So it came as a shock when, half a month into his tenure, news leaked that he’d proposed the largest corporate takeover in German history. Shares immediately plummeted 9%. “We went to bed as pharma shareholders and woke up with glyphosate,” says Christian Strenger, a corporate governance expert and Bayer shareholder..Bayer employees were also rattled. On a company webcast held days after the news broke, several demanded to know whether Bayer could afford the takeover, whether the move would detract from necessary investments in the pharmaceuticals division, and whether Monsanto’s toxic image would sully the name of their revered employer. Baumann said there was nothing to worry about, telling the employees that though Monsanto might be unpopular in Europe, where genetically modified organisms are largely banned, its reputation overseas was different. “In the U.S.,” he said, “Monsanto is a very, very reputable company.”.By the time Bayer reached a takeover agreement in September 2016, 120 non-Hodgkin lymphoma lawsuits had been filed against Monsanto. That didn’t overly concern Baumann. He was less interested in Roundup than in the U.S. company’s GMOs and digital farming operations, which deploy satellites, drones, infrared imaging, and GPS-controlled tractors to help farmers make better planting decisions. That said, Monsanto’s weed-killing business, which earned $3.7 billion in 2017, was an attractive enough revenue source that Bayer complied with antitrust regulators by selling its own flagship herbicide, called Liberty, and most of its seed business to German rival BASF SE for $7 billion..Patented by Monsanto in the early 1970s, glyphosate has been called the Holy Grail of herbicides for its efficiency at killing weeds and expanding harvests. After Monsanto introduced its glyphosate-resistant Roundup Ready seeds in 1996, glyphosate use soared fifteenfold. By 2014 farmers were spraying almost 1 pound of it on every acre of cropland in the U.S. and almost half a pound on every acre worldwide..Before the acquisition, Monsanto claimed on a website that glyphosate is “about half as toxic as table salt and more than 10 times less toxic than caffeine.” The compound has won repeated approval from regulatory agencies around the world, including in Australia, Canada, the European Union, Japan, and the U.S. Many farmers view glyphosate as crucial to affordably feeding a growing population on a rapidly warming planet..Still, there were plenty of red flags. In March 2015 the International Agency for Research on Cancer (IARC), a France-based arm of the World Health Organization, convened 17 experts from 11 countries. They reviewed all publicly available research on glyphosate—about 1,000 studies—and concluded that it is “probably carcinogenic to humans.” Although IARC has no regulatory power, the findings opened the door for litigation in the U.S. and globally. IARC also says that glyphosate-based formulations, including Roundup, are often more toxic than glyphosate alone..In 2017, when Baumann surveyed scientists in Bayer’s pharmaceutical unit in Berlin, several said they believed Roundup may cause cancer. And by the time the acquisition was complete, teams of plaintiffs’ lawyers had forced the release of more than 400 internal Monsanto documents—the so-called Monsanto Papers—illustrating how the U.S. company fought off serious concerns dating as far back as 1984. In 2016 the EPA assembled a panel of outside scientists to peer-review the agency’s long-held view that glyphosate is safe. Eight of 15 panelists raised significant concerns about the EPA’s stance, and three more questioned data presented by Monsanto and other pesticide manufacturers. The EPA’s final report, which largely validated the agency, obfuscated these apprehensions..“If the EPA tomorrow were to fund a long-term rodent study on Roundup, it would regain so much credibility,” Wisner says. “It would show that they’re actually willing to consider that it causes cancer. But they’re not.”.Now 36, Wisner, with a round face, reddish hair, and stubble that he shaves for court appearances, bears a resemblance to the comedian Zach Galifianakis. He’s quick to joke about the social benefits of his work. “The first thing I do when I meet a stranger is, I tell him that I’m a lawyer, that I sue Monsanto, because people immediately go, ‘Good man, let me buy you a drink.’ ” He adds: “Everywhere I go, it’s amazing, everyone f---ing hates these guys. It’s great.”.Wisner’s own mistrust of Monsanto stretches back to his childhood in Topanga Canyon, Calif., a bohemian enclave in western Los Angeles County. His father, an environmentalist, screenplay writer, and author of Living Healthy in a Toxic World, worked with labor organizer Cesar Chavez to get medical help for farmers exposed to DDT, a pesticide manufactured by, among others, Monsanto..After completing law school at Georgetown University, where he also got a master’s degree in public policy, Wisner returned to Los Angeles and landed a job with Baum, Hedlund, Aristei & Goldman as a plaintiffs’ attorney. In 2015 a woman in the marketing department sent the firm’s lawyers an emotional email, asking them to consider a case against Monsanto. Her uncle, an avocado farmer who’d used Roundup for years, had just died after a short battle with non-Hodgkin lymphoma. Most of the partners dismissed the idea because proving the cause of cancer is almost impossible. But Wisner spent a few weeks researching the science and concluded, “Holy shit, there’s actually a case here.”.He called some other prominent plaintiffs’ attorneys across the country and found that several were collaborating to file Roundup suits. One of them, Michael Miller, who runs a law firm in Orange, Va., welcomed Wisner on board. “He goes, ‘Shit guys, I’m already doing this. I got 10 cases. We’re having a meeting in Denver in two weeks. Come on down, let’s go,’ ” Wisner says..The attorneys, most of them from five firms, decided to focus on non-Hodgkin lymphoma patients, because IARC had found “a statistically significant association” between the disease and exposure to glyphosate. Wisner began by collecting academic studies and successfully unsealed more than 80 confidential company documents, his own contribution to the Monsanto Papers..The group’s first case, representing the former school groundskeeper, Dewayne “Lee” Johnson, was rushed to trial because Johnson was close to death. Two weeks before the trial date, the 67-year-old Miller, a seasoned trial lawyer who’d been working on the case for three years and was scheduled to lead it, suffered a near-fatal kiteboarding accident. When Miller’s junior associate was rushed to the hospital a few days later following a grand mal seizure, Wisner was called in to co-lead the case with another young lawyer, David Dickens, from Miller’s firm..Wisner had only tried two cases at that point, but he’d spent years compiling research on Monsanto. At the trial, his opening remarks stretched to almost four hours, and during breaks he apologized to colleagues for taking so long. “But they told me, ‘The jury loves it. They’re engaged, they’re taking notes.’ ”.Four weeks later, in a packed courtroom, the jury awarded Johnson $289 million. “I just started crying,” Wisner recalls. “And I looked over at the jurors, and three of the jurors were crying. I’m looking at the court reporter, and she’s starting to cry as she’s trying to type the transcript. Lee’s crying. … It was powerful.”.At Bayer headquarters, news of the verdict came as a shock, recalls Liam Condon, president of the crop science unit. Just two months earlier, before acquiring Monsanto, Baumann had planned to overcome the company’s poor image by immediately retiring the Monsanto name. But suddenly, Monsanto, and now Bayer, were all over the news. As Bayer’s stock price began to fall—it tumbled as much as 47% over the following year—Baumann announced plans to further hone the company’s focus on crop science and pharmaceuticals by slashing 12,000 jobs around the globe, about 10% of the workforce, and selling off its animal health business and parts of its consumer health franchise, including Dr. Scholl’s and the Coppertone sunscreen brand..By the time Bayer convened its annual shareholder meeting this April, the mood was explosive. Inside the World Conference Center Bonn—a massive glass-and-steel complex that housed the former West German parliament—scores of shareholders vented their frustration for almost 12 hours. Many were furious they’d never been given a chance to vote on the Monsanto deal. Some said the Roundup debacle had been entirely foreseeable, especially since the number of plaintiffs had swelled to more than 5,000 by the time the merger closed. “The erstwhile pharma giant has mutated into a dwarf,” one investor fumed..Later that night, a visibly emotional Wenning read the results of a shareholder confidence vote. Baumann had become the first CEO of a major German company in decades to lose majority support, though the vote was nonbinding. And yet he remained calm, as he had been all day while repeatedly stating that Bayer, with help from an outside firm, had performed due diligence, examining all publicly available documents about glyphosate from the world’s regulatory agencies, as well as some internal documents from Monsanto, before concluding that the Roundup litigation risk had been low..Instead of conceding any personal blame, Baumann said the plaintiffs’ attorneys had made “incredible” and “upsetting” accusations about Monsanto, which had misled the juries and were undermining society’s faith in facts. “Here at Bayer,” he said, “we are committed to helping people regain the trust they have lost in science and in the regulatory authorities.”.Two weeks later, Bayer lost its third Roundup trial, which brought the $2 billion verdict. Meanwhile, off-putting news about Monsanto continued to emerge. In May the French media uncovered a 2016 Monsanto project to keep track of journalists, politicians, and scientists, allegedly to suppress criticism of glyphosate. Bayer appointed a law firm to investigate the claims and concluded that Monsanto’s actions weren’t illegal. In August the Guardian reported that Monsanto had operated a so-called fusion center to monitor and discredit activists and reporters. A Bayer spokesman told the Guardian that Monsanto’s activities “were intended to ensure there was a fair, accurate, and science-based dialogue about the company and its products.”.In the midst of all the damning revelations, Elliott Management Corp., a hedge fund led by Paul Singer, disclosed a $1.3 billion stake in Bayer. Singer, one of the world’s most adversarial activist investors, made his fortune investing in distressed countries, including Argentina and Peru, as well as ruthlessly bringing down CEOs and streamlining companies. (One CEO told the New Yorker that researching Elliott after you find out it’s invested in your company is like “Googling this thing on your arm and it says, ‘You’re going to die.’ ”) In June, Singer’s firm released an ominous statement saying, “While resolving the litigation challenge is clearly an immediate priority, Elliott believes Bayer could do more to maximize long-term value for all its stakeholders.” Concerns that an outsider would claw into Bayer and break it apart had become a very real possibility..If Bayer is split, analysts say the pharma division is likely too small to thrive on its own and may become a takeover target for the likes of Pfizer Inc. Meanwhile, Bayer might have trouble justifying running the world’s biggest agriculture company from Germany, where GMO crops are banned and politicians recently agreed to try to phase out glyphosate by 2023. Instead, the headquarters could move to St. Louis, where Monsanto in recent years spent about $400 million to upgrade facilities..Baumann’s best hope for salvaging his job and keeping Bayer intact will require moving beyond the Roundup litigation. In June the company brought on renowned tort lawyer John Beisner. It was widely thought to be a sign that Bayer intended to fight rather than settle. But a month later, Baumann conceded the company is “constructively engaging in the mediation process” and would consider a financially reasonable settlement if it were to put a lid on the Roundup cases. Bayer and the next round of plaintiffs recently agreed to postpone several trials in St. Louis County until January, presumably to see whether a settlement will be reached this fall. Investors are hoping for a resolution soon. If Bayer can cut a deal for anything less than $10 billion, it will be worth it, according to Markus Manns, a fund manager for Union Investment, a top Bayer shareholder..Whatever happens, Roundup is rapidly falling out of favor. In the U.S., the big-box retailer Costco Wholesale Corp. removed it from shelves. Politicians from Austria to India are calling for glyphosate bans, while Belgium, Canada, and other countries are restricting use. The EU may simply allow the herbicide’s authorization to expire in 2022..Millions of farmers still rely on Roundup, however, and argue that nonglyphosate products would potentially be worse for the environment. When reporters recently toured Bayer’s crop science division, employees backed Baumann, saying the Roundup litigation isn’t only misplaced, it’s also a distraction from the company’s mission to develop much-needed agricultural technology to produce more food on less land. “The challenge just keeps getting bigger and bigger and bigger,” said Condon, the division chief..Baumann remains as placid and soft-spoken as ever. In early September he traveled to Frankfurt to attend meetings. Seated in the courtyard of the five-star Villa Kennedy hotel, he looked tan and relaxed. Eighty percent of his personal wealth is invested in Bayer, but he said he wasn’t losing sleep over the Roundup litigation. The world’s regulatory bodies, he said again, have long deemed the herbicide safe..Having absorbed Monsanto, Baumann continued, Bayer possesses unrivaled technology and resources to sustainably meet the growing challenges of the agricultural industry. In other words, he doesn’t regret buying the hated U.S. company. “Irrespective of what the legal opinions say, I would not sleep well, and I certainly would not be sitting here representing the company, if a major mistake had been made on my watch.” —With Joel Rosenblatt and Naomi Kresge.To contact the editor responsible for this story: Daniel Ferrara at dferrara5@bloomberg.net.©2019 Bloomberg L.P.

With Each Roundup Verdict, Bayer’s Monsanto Purchase Looks Worse

Facing billions of dollars in glyphosate lawsuits, the company may not survive a self-inflicted wound.

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