Weed-killer woes Monsanto’s Roundup a looming liability for Bayer as megamerger nears

Class-action lawsuits filed against Monsanto’s weed killer could sink the company’s tie-up with Bayer, despite concessions to win regulatory approval.
Quelle: Bloomberg
A farmer's friend or foe?

As Europe’s antitrust watchdogs deliberate over one of the largest mergers in the global seed and chemicals industry, letters from constituents calling for a halt to the deal between Bayer and Monsanto are flooding into Brussels. Citizens worry that together, Bayer, as the world's largest producer of pesticides, and Monsanto, the leading supplier of genetically-modified seeds, will stifle competition and create a monopoly.

Thanks to recent concessions made by Bayer to assuage anti-trust regulators, which include parting with its remaining seed business and providing a competitor access to its popular IT platform, the German conglomerate’s prospects for cinching the deal are more promising than ever.

Yet Bayer’s compromises might not be enough if Missouri-based Monsanto’s legal troubles throw a wrench in the works: The agrochemical giant currently faces 2,200 law suits in the US alone, which claim Monsanto’s flagship product, Roundup, and more specifically its main ingredient glyphosate, causes cancer.

Monsanto is also involved in legal action against the state of California. It wants to end regulations that force it to include warnings on products containing glyphosate. The rules were passed after the World Health Organization’s International Agency for Research on Cancer announced in 2015 that glyphosate was likely carcinogenic. Monsanto says its product is safe if used as directed.

26 p15 Bayer and Monsanto-01

Further damaging Monsanto’s reputation is the link between another herbicide, dicamba, and devastating crop loss. The product is currently banned in Arkansas. Meanwhile Bayer is pointing to studies that suggest glyphosate is safe, but this will likely not spare Monsanto, and therefore Bayer, incalculable costs in terms of financial resources and time spent on legal proceedings.

Sources at Bayer’s headquarters in Leverkusen describe the mood as tense, saying the Monsanto takeover has weakened the company: Employees are concerned Monsanto’s reputation will tarnish Bayer, and constant questioning from antitrust authorities is wearing down nerves.

Since 2016, Bayer has worked hard to ensure this deal goes through: In the last four months alone, they sold significant parts of their Liberty brand to German chemical giant BASF for €5.9 billion ($7.2 billion) and sold off shares in plastics unit Covestro. Bayer also offered this month to part with its remaining vegetable seed business, which operates under the brand Nunhems and includes varieties for more than two dozen crops.

The EC's fastidiousness could wind up benefiting BASF.

The Swiss company Syngenta is an interested buyer out to strengthen its seed business, but a sale has not been finalized. The European Commission isn't thrilled about this potential divestment -- it would prefer Nunhems go to a company like BASF, which lacks a seed portfolio. In the end, the EC’s fastidiousness could wind up benefiting BASF if they veto the Syngenta deal to favor BASF, which would be best-positioned to become a major competitor in the seeds sector more quickly.

Another concession makes BASF privy to Bayer’s agricultural production software, which allows farmers to control irrigation, spray pesticides or order more fertilizer. Whether Bayer will need to grant licenses for the technology to other competitors remains to be seen.

Bayer’s wearisome quest to appease Competition Commissioner Margrethe Vestager after first accepting the deal in 2016 proved more difficult than originally expected. With the company’s latest concessions, it has at long last addressed the remaining—and not insubstantial—concerns about the merger. According to Ms. Vestager, her primary focus is to ensure farmers have “the widest possible choice of systems,” preventing any one company from having undue influence on how foods are produced.

It remains to be seen whether the looming liability of Monsanto's legal troubles come into play as Ms. Vestager deliberates on the merger. For now, Bayer must again wait for an announcement, which inside sources expect on March 28. Although the US must also provide approval, it is a green light from the Europeans that is seen as the crucial breakthrough.

Bert-Friedrich Fröndhoff leads a team of reporters covering the chemicals, healthcare and services industries. Till Hoppe reports on politics, with a focus on defense, domestic policy and cyber issues. Robert Landgraf is Handelsblatt’s chief correspondent for the financial markets. To contact the authors: [email protected][email protected][email protected].