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Bayer’s Dicamba Hit Tests Patience of Frustrated Investors

Jef Feeley, Tim Bross and Tim Loh

(Bloomberg) -- Bayer AG’s loss in the first U.S. trial over the herbicide dicamba is set to test the patience of investors who’ve stuck with the company through the dark days of its Roundup crisis.

Most will probably hang on for now, since their investment is based on the assumption that Bayer is undervalued in the face of a hurricane of lawsuits claiming that best-selling weed killer Roundup causes cancer. Adding dicamba to the legal storm -- a chemical accused of killing plants, not people -- probably won’t change that calculus, according to Alistair Campbell, an analyst at Liberum Capital. And Bayer is sharing the potentially multibillion-dollar headache in this case with BASF SE.

Even so, the loss in the first U.S. dicamba trial -- with a $265 million jury award -- raises fresh questions about the wisdom of Bayer’s $63 billion Monsanto takeover. That’s happening at a time when the company still needs to prove it can effectively operate the crop science behemoth it built up through its megadeal.

“There is still a huge question mark over the Monsanto transaction and what it’s done to Bayer,” Campbell said. “There remains a lot to be proven.”

Bayer shares were down 1.9% and BASF’s down 1.1% at 3:10 p.m. in Frankfurt. Bayer has dropped 23% since it closed the Monsanto acquisition and subsequently lost three U.S. trials over Roundup.

Bayer’s latest headache emerged Saturday when jurors in a federal court ruled in favor of a farmer who blamed the chemical dicamba for destroying his peach orchards. Bayer and BASF face more than 140 lawsuits over allegations that dicamba wreaked havoc across the Midwestern U.S. when it drifted onto crops that weren’t engineered to resist it.

Bayer is already trying to settle tens of thousands of lawsuits claiming exposure to Roundup causes cancer. Both dicamba and Roundup are produced by Monsanto, which Bayer acquired in 2018.

The loss heaps more pressure on Bayer Chief Executive Officer Werner Baumann, who staked his career on Monsanto. Last April, after a couple of Roundup trial losses, Baumann became the first CEO of a major German company in decades to lose a shareholder confidence vote.

Activist investor Elliott Management later disclosed a stake in the company, raising the prospect of holders pushing to split up the pharma and agro-chemicals conglomerate. Baumann, a defender of that setup, faces another shareholder vote in April.

Act Fast

Since dicamba is another legacy Monsanto product, the latest verdict threatens to undo Bayer’s recent momentum. Since June, the stock has recouped about half of the value it lost following the Roundup trial losses.

The ruling is “a negative for sure,” though dicamba will probably not grow into a headache as big as Roundup, said Dennis Berzhanin, an analyst at Pareto Securities in Frankfurt.

Here is what analysts say about the Dicamba ruling

The company vowed to appeal, saying there’s no evidence Monsanto’s products were present on the Missouri farm and were responsible for the farmer’s losses.

BASF said it was surprised by the U.S. jury’s decision and would use all legal remedies available.

Bayer has thus far managed to avoid going back to trial over Roundup and talks have heated up with plaintiff attorneys toward a possible resolution of that litigation. Its shares would probably surge if Bayer can close the Roundup headache for as little as $10 billion, analysts have said.

The Roundup and dicamba litigation aren’t Bayer’s only legal woes. It’s set to go to trial in March in the first of thousands of lawsuits claiming it hid safety risks of its Essure birth-control device.

Other Cases

The company is also battling lawsuits by numerous cities alleging that Monsanto contaminated waterways with toxic PCBs. Bayer has denied wrongdoing over both weedkillers as well as Essure and PCBs. It also has appealed the Roundup verdicts.

It’s unclear how the award will be split between Bayer and BASF. The latter may shoulder two-thirds of the damages, wrote Daniel Wendorff, an analyst at Commerzbank AG.

Read More: Bayer’s Roundup Challenge: Avoid More ‘Nuclear’ Jury Awards

Monsanto has been fighting lawsuits since 2015 over its version of dicamba. BASF makes its own dicamba-based herbicide for use on its genetically modified seeds.

The companies say the crop damages stem from farmers applying the chemical incorrectly, and that current formulations won’t drift if proper procedures are followed.

Peach Yields

In the Missouri trial, Bader said neighbors planted dicamba-resistant cotton engineered by Monsanto and sprayed it with the older, easy-drift version of the weedkiller made by BASF. The herbicide enveloped his orchards, curling leaves and killing trees.

The companies’ lawyers presented statistical evidence showing that Bader’s peach yields had begun to fall prior to 2015. They cited weather events, such as hail storms and late freezes, as the cause for declining production.

Bev Randles, a lawyer for Bader, said the verdict sends a message to all U.S. corporations.

“There is no giant too big,” she said. “Everyone has to follow the law.”

The case is Bader Farms v. Monsanto Co., 16-cv-00299, U.S. District Court, Eastern District of Missouri (Cape Girardeau).

--With assistance from Richard Weiss and Andrew Noël.

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net;Tim Bross in St. Louis at btbross@gmail.com;Tim Loh in Munich at tloh16@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Thomas Mulier

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