Bayer’s Boss Gets to Own His $63 Billion Misstep
(Bloomberg Opinion) -- Bayer AG’s response to Friday’s historic shareholder protest against its senior managers simply doesn’t go far enough.
The German chemicals giant had – as is standard practice – put forward a symbolic motion at its annual meeting to absolve CEO Werner Baumann and his colleagues for their actions in the previous year, which this time included June’s disastrous $63 billion acquisition of Monsanto Co. Some 55 percent of investors voted against the company, a spectacular defeat for Bayer.
The supervisory board came out quickly to throw its support behind the executive team, offering only an anodyne nod to the dissent by saying Bayer needed to “bring out the company’s strengths to a greater extent in the future.”
That barely begins to describe the situation. Bayer’s market value of 56 billion euros ($62 billion) is more than 30 billion euros lower than where it was in August thanks to the huge potential liabilities relating to Monsanto’s Roundup weedkiller, which faces thousand of lawsuits claiming it causes cancer. (Bayer is contesting the cases). Even before the first adverse court decision verdict that triggered a sharp loss of investor confidence, Bayer’s stock was trading roughly where it was before its interest in buying the U.S. seeds giant emerged in early 2016.
Bayer’s supervisory board needs to take a serious look at how the company sets strategy and makes decisions because something has gone badly wrong. It must address whether its due diligence process for M&A is adequate. Some of the lawsuits afflicting Monsanto were happening in the background before the takeover completed. The German giant has commissioned work that says the board fulfilled its duties in assessing the risks. It’s wrong if it thinks that gets the company off the hook.
Consider the circumstances of how this deal happened. Buying Monsanto is not a transaction that was supported widely and then went suddenly awry. It was unpopular with investors from the start, marking a radical shift in strategy toward agriculture and constraining Bayer’s ability to develop the pharma business through other deals. Shareholders protested but didn’t get a vote on a takeover that emerged very much from Baumann’s grand vision for the company. Hubris has followed.
Might management's determination to do this deal have made it take a “glass half-full” view of litigation risk in the U.S.? Bayer’s consistent message is that science is on its side in the weedkiller cases. But weighing scientific risk and legal risk are not the same thing, especially in a highly litigious environment like the U.S.
It’s far from clear that jettisoning management would lead to a quicker resolution of the mess in which Bayer finds itself. A breakup of the company into separate life science and crop businesses will not reduce the Roundup liabilities, and is probably impossible until the claims are resolved. Nevertheless, Baumann is protected only by pragmatism; changing leadership now might just weaken the company's ability to defend itself in the courts. And there may not be a better candidate out there yet.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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