Bayer-Monsanto Knot now Firmly Tied
After completing the transfer of certain agrochemicals assets to BASF on Aug. 16, Bayer has begun integrating Monsanto into its organization. Anti-trust regulations had required operating the two companies separately until all regulatory hurdles were cleared, and the German group became sole owner of its former US rival in June
The asset transfer involved products with annual sales of €2.2 billion, for which BASF agreed to pay a total of €7.6 billion, subject to certain adjustments at closing.
Repeating earlier forecasts, Bayer said it expects the acquisition to begin making a positive contribution to core earnings per share from 2019, with a double-digit percentage expected from 2021 onward. From 2022, annual contributions of $1.2 billion to EBITDA before special items are projected to result from synergies.
At the same time, Bayer said it will “further strengthen its commitment to sustainability.” On both counts, some think this could be an uphill battle in light of a California jury’s Aug. 10 award of $289 million to a school groundskeeper who blamed his cancer on glyphosate, the main ingredient in Monsanto’s Roundup herbicide.
Despite commenting that the scientific evidence appears to be on Bayer’s side and that an appeal could reverse the first ruling, Bernstein analysts said in a note to clients that the sheer number of cases pending – estimated to be as many as 5,000 – could be “potentially ruinous” for the German group.
The now biggest agribusiness player globally, Bayer said, however, it believes the jury’s decision “is at odds with the weight of scientific evidence, decades of real world experience and the conclusions of regulators around the world that all confirm glyphosate is safe and does not cause non-Hodgkin’s lymphoma.”
From Bayer’s perspective, the verdict “is just the first step in this case, and it remains subject to post-trial motions in the trial court and to an appeal, as announced by Monsanto.” As the litigation proceeds, the Leverkusen-based group said it thinks the courts “ultimately will find that Monsanto and glyphosate were not responsible” for the groundskeeper’s illness.
Due to the US restrictions, Bayer did not have access to detailed internal information at Monsanto up to now, and was not permitted to comment on its business matters in detail. From now on, the group said it intends to become “actively involved in defense efforts in the glyphosate trials and any other legal disputes, such as potential claims for damages in connection with the product dicamba.”
Several US states have restricted the use of the Monsanto herbicides containing the chemical, due to the damage it is said to have caused to crops not genetically modified to resist it. Monsanto has been actively campaigning to overturn the restrictions.
Dicamba was key to Monsanto's biggest-ever biotech seed launch in 2016. The company’s Xtend lines of soybeans and cotton are designed to tolerate the active ingredient, which replaces earlier products containing only glyphosate. Some weeds have developed resistance to glyphosate.