Daily Management Review

Bayer Warns Of Higher Costs For Roundup Settlement While Taking A $10 Billion Writedown


Bayer Warns Of Higher Costs For Roundup Settlement While Taking A $10 Billion Writedown
Higher costs for legal suits related to claims around its weedkiller Roundup as well as impairments on agriculture businesses, much of it related to its Monsanto deal, which amounts to 9.25 billion euros ($10.82 billion) is a double blow for Bayer.
For the third quarter, the company reported a loss before interest and tax of 9.4 billion euros because of an increase of about $750 million in the costs of settlement terms with plaintiffs in the United States over Roundup as well as the write down because of weaker demand from farmers due to low biofuel prices, the company said.
A large number of court cases related to Roundup, based on the herbicide glyphosate, has come to haunt Bayer as a part of the bargain for its takeover of Monsanto for about $63 billion in 2018 – a deal that made the Bayer the largest supplier of seeds and pesticides in the world.
"The impact of the (coronavirus) pandemic is placing additional strain on our Crop Science Division. We are also facing negative currency effects,” Chief Financial Officer Wolfgang Nickl said.
The business of the company the second largest agricultural market of the world has been massively hit because of a massive depreciation of the Brazilian real, Nickl said.
What part of the impairment was attributable to legacy Monsanto businesses was something that Bayer was unable to say anything about but said that currency and interest rate effects were responsible for two-thirds of the write downs.
While warning of slight decline in 2021 core earnings per share, Bauer had on September 30 also forecast that its impairment charges would be in the mid to high single digit billion euros range for its agricultural assets.
In June, an $11 billion outline agreement with US plaintiffs' lawyers was struck by Bayer but that was opposed later by a judge because of the impact on future cases that may yet be lodged, known as a class plan that a side arrangement like that can have.
Bayer said that the company will have to expend $750 million more in order to address those concerns.
It was "far enough along in the negotiations to know that the new plan will come in at approximately 2 billion U.S. dollars, an increase over the original cost of 1.25 billion U.S. dollars," Bayer said.
"This situation confirms our belief that Crop Science is a business with low visibility," said Jean-Jacques Le Fur, an analyst at brokerage Bryan Garnier. He reiterated a "sell" recommendation, also citing uncertain Roundup litigation costs.
The gains made during the quarter made by the company from the divestment of a stake in industrial park operator Currenta of 5 billion euros and the sale of its Animal Health business to Elanco were offset by the charges.
That resulted in a net loss of 2.7 billion euros compared with an average analyst projection of 1 billion euro in net income.
Agreement in principle have been arrived at for 88,500 of the 125,000 glyphosate claims in the class settlement, Bayer said, adding that considerable progress was being hoped by it to be made over the next few months.