Bayer Faces Shareholder Showdown Over Monsanto Despite Strong Earnings -- 2nd Update
April 25 2019 - 12:50PM
Dow Jones News
By Ruth Bender
BERLIN -- Bayer AG's shares rose 1.4% Thursday on
better-than-expected results, giving the company a brief respite
ahead of Friday's potentially unruly shareholder meeting, as
investors grow impatient with the company's legal woes in the
U.S.
The German chemicals and pharmaceuticals company reported an
above-expected rise in first-quarter adjusted earnings before
interest, taxes, depreciation and amortization and sales, driven
mostly by the integration of Monsanto Co., which it acquired for
$63 billion last year.
But Bayer said the number of lawsuits tying Monsanto's Roundup
weedkillers to cancer rose another 20% since late January. As of
April 11, 13,400 plaintiffs had claimed the weedkillers containing
the chemical glyphosate had given them cancer and other illnesses.
Bayer has so far lost the first two Roundup suits in California. A
third trial is under way there and four more are scheduled to begin
this year in Missouri and Montana.
The Monsanto acquisition was meant to add a strong second leg to
Bayer's midsize pharmaceuticals business. But it has become an
open-ended liability that has chopped off more than a third of the
company's market capitalization and unnerved investors. Some
shareholders are now openly criticizing management for
underestimating the acquisition's legal risks and are expected to
vent their frustration at Friday's annual general meeting in Bonn,
Germany.
"Today, one can't talk of a successful purchase if it brings
such striking legal and reputational risks," said Ingo Speich, head
of corporate governance at Deka, a fund manager that owns roughly
1% of Bayer.
Bayer's position has been that there is overwhelming scientific
evidence that Roundup is safe to use. It is appealing the verdicts
and continues to defend the merits of the Monsanto deal.
But Chief Executive Werner Baumann and his fellow directors will
face a grilling on Friday about the merits of the deal and how they
are working to contain the damage, according to several large
shareholders.
Some -- including BlackRock Inc., which holds more than 5% of
voting rights -- plan to reject or abstain on a motion to endorse
the management board's actions for 2018, according to a person
familiar with the matter. Some proxy advisories, as well as Deka,
have called on shareholders to express their dissatisfaction by
voting against management and the supervisory board.
While such a no-confidence vote is largely symbolic, it is seen
as an important gauge of investor confidence. A strong rebuke could
put Mr. Baumann under increased pressure to resolve the crisis
engulfing the company.
Axel von Werder, who runs the Berlin Center of Corporate
Governance at Berlin's Technical University, said "if a significant
number of shareholders vote against it, then every supervisory
board must ask itself the question whether it still has the right
management in place."
Bayer's management and supervisory boards have rejected the
criticism as unfounded. They said both boards thoroughly reviewed
all risks of the deal and determined the Monsanto acquisition
didn't present substantial risks, legal or otherwise.
Few shareholders expect Mr. Baumann to go. He and Chairman
Werner Wenning share a close bond and the supervisory board trusts
them, according to people familiar with the company. But some Bayer
executives are growing nervous that large shareholders could start
to unload shares, said one of the people.
David Einhorn's Greenlight Capital Inc. exited a 2 1/2 year
investment in Bayer. "Essentially, this investment failed at nearly
every turn," the hedge fund's officials told investors in a
February letter, mentioning the Roundup litigation as well as
troubles in Bayer's pharmaceutical and consumer health
businesses.
Peter Verdult from Citi said Thursday's results weren't likely
to distract investors from the legal concerns. Analysts and
investors have their eyes on the next trials and the company's
appeal on the first California verdict.
Until there is more clarity over how the legal battle will end,
Bayer could at least in the short term be shielded from becoming
the target of activists trying to push the company for more radical
changes, such as a breakup, some analysts and investors said.
Elliott Management Corp., a hedge fund with an aggressive record
at forcing management and strategic changes, has built up a small
undisclosed stake in Bayer -- but there is no sign it is pushing
for specific changes, according to people familiar with the matter.
Bayer and Elliott both declined to comment.
--Ben Dummett, Rachael Levy and Jacob Bunge contributed to this
article.
Write to Ruth Bender at Ruth.Bender@wsj.com
(END) Dow Jones Newswires
April 25, 2019 12:35 ET (16:35 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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