Bayer Toughens Scrutiny of Deals

Bayer AG said it would strengthen external oversight of its due diligence in deal making, in the company’s latest concession to shareholders after its 2018 acquisition of Monsanto swamped it with a tide of lawsuits and sent its stock crashing.
Bayer said Thursday that it would allow an independent expert to review its rules for scrutinizing major deals and would publish the results on its website in late March.
Bayer has also agreed to a new review of how it evaluated risks in its $63 billion purchase of Monsanto, which shareholders have criticized as overly risky after the acquisition plunged the company into a legal battle over Roundup weedkiller, which thousands of Americans allege causes cancer.
The moves highlight Bayer’s efforts to appease investors ahead of its shareholder meeting in April. By then, many shareholders expect Bayer to deliver progress on resolving the lawsuits. The company has been exploring a comprehensive settlement.
The agreement to a voluntary external audit also comes a day after the German chemical and pharmaceutical company said Chairman Werner Wenning, a company veteran of more than 50 years who had backed the Monsanto deal, was stepping down earlier than planned, a move some shareholders interpreted as a sign that Bayer is trying to turn the page.
Some of the group’s largest shareholders said the new chairman, Norbert Winkeljohann, would allow for a more independent oversight but criticized his lack of experience in Bayer’s businesses.
“A new era is starting at Bayer,” Chief Executive Werner Baumann said Thursday about the departure of Mr. Wenning, who was also his mentor. Markus Mayer, an analyst at Baader Bank, said Mr. Baumann’s future could become more fragile now that he is losing a crucial supporter, adding pressure on Mr. Baumann to reach a good settlement.
Some investors interpreted Mr. Wenning’s departure as a sign that a settlement is approaching. On Thursday, Bayer said it faced a total of 48,600 plaintiffs. That is 5,900 more than three months ago, but a less drastic spike than in the prior quarter. The company contends that the weedkiller is safe, and has appealed verdicts in the three cases it has lost so far.
Bayer has been negotiating with plaintiff attorneys since last summer to try to reach a deal to settle the claims. The company lost three jury verdicts in the U.S. last year and has since come under pressure from investors to find a way to put to rest the legal fight that has been dragging down its share price and prompted shareholders to withdraw confidence in Mr. Baumann at the group’s annual meeting last year.
Shareholders have accused Messrs. Baumann and Wenning of underestimating the risks of the Monsanto purchase. Christian Strenger, an individual shareholder in Bayer and a German expert on corporate governance, filed a motion at last year’s meeting for a special audit of whether directors acted dutifully in handling the Monsanto litigation risks.
The motion failed to obtain a majority but Bayer nevertheless agreed to take some of the recommendations on board in an attempt to assuage investors. Some analysts expect the meeting to deliver another rebuke for Mr. Baumann if Bayer can’t show it is making progress on settling the lawsuits.
Bayer said it hired an independent lawyer to review the legal advice it commissioned before the Monsanto acquisition about the legal risks of the deal. Lawyer James B. Irwin, a mass-torts expert, concluded that the legal opinions, on which Bayer based its decision to purchase Monsanto, appropriately analyzed the risks. Bayer will also publish this report on its website.
Bayer last year had already hired external lawyers to examine whether its management acted dutifully in their due diligence of the deal. The company said Thursday that those reports, which found no breach of duty, would also be published in a more detailed form.
Mr. Baumann reiterated Thursday that Bayer would agree to a settlement only if it can bring a “reasonable conclusion” to the entire legal battle, meaning it must also include a solution to prevent lawsuits against Bayer in the future, a sticking point in settlement talks. If necessary, Bayer will pursue all appeals to the highest courts, he said.
In its annual report, Bayer acknowledged that it “may incur considerable financial disadvantages” if forced to raise more debt, issue new equity or sell assets at unfavorable terms to cover payments related to the Roundup lawsuits. Finance chief Wolfgang Nickl said the company has good financial flexibility with recent sales of its animal-health unit and consumer-care brands.
Separately, the Monsanto purchase helped Bayer post a rise in profit and sales for its latest quarter, broadly meeting analyst forecasts and helping the group reach its full-year goals.
Net profit in the quarter swung to EUR1.41 billion ($1.53 billion) after a loss of nearly EUR4 billion a year earlier, helped by the integration of Monsanto and a recovery in crops science. Sales rose 3.8% to 10.26 billion in the fourth quarter, driven by the group’s blockbuster drugs, blood thinner Xarelto and eye treatment Eylea and the Latin American crops-science business.
Bayer said it targeted a rise in sales, profit and cash flow for 2020 — not accounting for any potential fallout from coronavirus — but analysts were slightly disappointed with some of the goals, prompting shares to drop 4.3% Thursday on a broadly lower DAX index.
https://www.marketscreener.com/BAYER-AG-436063/news/Bayer-Toughens-Scrutiny-of-Deals-WSJ-30079928/