Down Arrow Button Icon

Bayer AG raised the specter of “considerable liquidity challenges” as it engages in high-stakes negotiations over Roundup litigation in the U.S. and grapples with the pandemic.

The number of plaintiffs claiming that the weedkiller caused their cancers rose to 52,500 from 48,600 in February, Bayer said in its first-quarter earnings statement. It’s still too early to know how Covid-19 will impact this year’s results, but the outbreak has already slowed talks with plaintiff attorneys. Bayer said it’s pushing for a “financially reasonable” settlement that also resolves the potential for future claims.

“Against the background of a looming recession and looking at, in part, considerable liquidity challenges, this applies now more than ever,” the company said.

The Roundup talks remain the biggest question hanging over Chief Executive Officer Werner Baumann, who faces a confidence vote at Tuesday’s annual meeting. He lost the vote last year after Bayer suffered multiple U.S. trial defeats, cratering the company’s stock price and raising questions about the wisdom of the $63 billion takeover of Monsanto Co.

Crop Science Demand

Bayer rose as much as 3.8% Monday in Frankfurt, paring this year’s losses to 15%. The Euro Stoxx 50 Index rose 1.9% — in step with equities in Asia and U.S. equity futures — as more countries edged toward reopening businesses and public places.

Bayer’s first-quarter sales and earning beat estimates, led by a crop-science division that saw robust demand for insecticides and fungicides, Sanford C. Bernstein analysts led by Gunther Zechmann said in a note. The pharmaceuticals and consumer-health units also did better than expected. “We’re not overly worried about the Covid-19 impact on Bayer,” the analysts wrote.

Bayer said Monday that it’s still targeting 2020 core earnings per share between 7 euros and 7.20 euros, although the effect of Covid-19 is impossible to assess. A reliable forecast won’t be possible until later this year, the company said.

Customers stocking up on supplies early on in the outbreak also boosted Bayer, and that will probably fade in coming months, according to Michael Shah, an analyst at Bloomberg Intelligence. The drawn-out Roundup talks only add to the cloud of uncertainty over the company, he said.

Gross financial debt was 39.6 billion euros ($42.9 billion) as of March 31 compared to 4.2 billion euros of cash and other financial assets, Bayer said in slides accompanying the results.

The company began mediation talks with plaintiff attorneys in May. After the coronavirus outbreak took hold, Bayer backed out of tentative agreements to resolve the claims, Bloomberg News reported earlier this month, citing people who asked not to be identified because the talks are private. That gave more time to assess the impact of the pandemic and may help Bayer keep the total amount of Roundup settlements under $10 billion, the people said.

Growing Costs

In February, Bayer acknowledged for the first time that lawsuits related to the controversial weed killer Roundup could force it to sell assets, issue new equity or borrow money at unfavorable terms. Still, the company had “quite a solid balance sheet” to cover the growing costs of its legal troubles, Baumann said at the time.

One prominent plaintiff attorney, Brent Wisner, said in February that Bayer had dangled the prospect of bankruptcy for Monsanto, which could result in plaintiffs receiving pennies on the dollar for their claims. Bayer declined to comment on this at the time.

After losing three cancer trials in California that resulted in combined damages of $191 million, Bayer agreed to postpone the next round of Roundup trials to provide more time for negotiations. At least a half-dozen scheduled to start in the first quarter of this year have been put on hold. Bayer is appealing the verdicts.