Bayer Request to Settle Future Roundup Claims Is Denied by Judge

(Bloomberg) -- Bayer AG is considering removing the controversial glyphosate ingredient from its residential Roundup range in the U.S. after a judge rejected a proposal to resolve future claims that the weedkiller causes cancer.

The decision by U.S. District Judge Vince Chhabria on Wednesday further compounded Bayer’s struggle to wrap up litigation inherited from the acquisition of Monsanto Co. In response, Bayer said it would implement a series of measures, including reviewing its U.S. residential lawn and garden business.

While the company remains committed to the Roundup brand and the residential sector, it indicated it may no longer use glyphosate as the active ingredient for its household products. Other steps to mitigate its risks from future claims include continuing legal appeals, reassessing settlement efforts and creating a website addressing Roundup’s safety concerns.

“We have an alternative course of action: we are in charge and in control now,” Bayer Chief Executive Officer Werner Baumann said Thursday on a conference call. “We continue to pursue a comparable solution. There are different ways to skin a cat.”

Bayer fell as much as 5.3%, its biggest drop in three months. The shares were down 4.2% at 52.65 euros as of 10:50 a.m. in Frankfurt, valuing the Leverkusen, Germany-based company at 52 billion euros ($63 billion).

In a brief order that addresses what the judge called only “the most glaring flaws” of the deal, Chhabria turned aside the complicated agreement -- the second time he’s shot it down. The rejected settlement is part of a broader $11.6 billion agreement to resolve Roundup lawsuits in the U.S. from about 125,000 consumers and farmers.

Chhabria said the settlement to pay as much as $2 billion to resolve future claims is “clearly unreasonable” for consumers who are exposed to Roundup but aren’t yet diagnosed with non-Hodgkins lymphoma -- and may not be for a decade or longer.

Provisions in the settlement “greatly exaggerate” the potential benefits of four years of “vaguely described medical monitoring” for those who have not yet contracted the cancer, Chhabria said. Benefits of a compensation fund are “also vastly overstated” for that group, he ruled.

What Our Analysts Say:

A U.S. District Court judge’s rejection of Bayer’s $2 billion plan to settle future Roundup claims wasn’t entirely unexpected, in our view, given prior skepticism raised by the lower court. While it may not affect a $10 billion settlement deal, the rejection leaves uncertainty as to how to deal with future claims.

-- Christopher Perrella and Michael Shah, Bloomberg Intelligence (Click here for the full note)

Glyphosate-containing products in the residential market bring in about 300 million euros in annual revenue, according to Bayer. The company, which maintains that the herbicide is safe, would consider the ingredient change for residential uses to reduce legal risks, because 90% of plaintiffs have come from that segment. It ruled out any formula changes for the professional and agricultural space, saying there aren’t any alternatives.

“There will be no product recall,” said Liam Condon, head of the crop-science unit. “What we’re discussing with our partners is the future of the active ingredient, that’s all.”

The company will also initiate discussions with the U.S. Environmental Protection Agency about changing the label on glyphosate-containing products, with the aim of connecting consumers to a body of studies that back the company’s view that the product is safe to use.

Elizabeth Cabraser, a lawyer representing consumers in the rejected accord, said she was disappointed by the ruling but continues to believe a multi-billion-dollar class settlement is attainable. She said a deal would include, among other benefits, diagnostic assistance, compensation, free legal services, research into NHL treatment, and “Roundup label reform” to inform consumers about the science behind the link between Roundup and NHL.

Read More: Bayer Judge Balks at Roundup Settlement Plan for Future Claims

The ruling is another setback for Bayer in litigation that remains a major obstacle for the company since it closed its purchase of Monsanto in 2018. The settlement process has dragged on, and more lawsuits over the weedkiller pile up almost daily.

There was a bright side for Bayer though. The company said the judge’s ruling means that cash flow this year and next will be higher because the company had “front-loaded” any possible payments that will now not come into effect.

Provisions created to address current litigation, equal to about $9.6 billion, are sufficient, and Bayer has already made considerable payments, the company said

Numerous consumers objected to the settlement on a variety of grounds, saying that revisions to the earlier, rejected proposal aren’t good enough. Last year, Chhabria rejected a $1.25 billion proposal for future claims.

The Roundup case is In Re Roundup Products Liability Litigation, 16-md-02741, U.S. District Court, Northern District of California (San Francisco).

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