Bayer takes $10 billion writedown, flags higher Roundup settlement bill

By Ludwig Burger, Patricia Weiss

Bayer is facing a double hit from a higher legal bill for claims relating to weedkiller Roundup as well as 9.25 billion euros ($10.82 billion) in impairments on agriculture businesses, much of it related to its Monsanto deal.

The company said the write-downs, driven by weaker demand from farmers due to low biofuel prices, plus an increase of about $750 million in the costs of settlement terms with U.S. plaintiffs over Roundup, resulted in a loss before interest and tax of 9.4 billion euros in the third quarter.

Bayer was caught up in litigation over Roundup, based on the herbicide glyphosate, as a result of its 2018 takeover of Monsanto for about $63 billion, which made it the world’s largest supplier of seeds and pesticides.

“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.

Nickl said a massive depreciation of the Brazilian real was weighing heavily on business in the world’s second-largest agricultural market.

Bayer said it was unable to say what part of the impairment was attributable to legacy Monsanto businesses, saying only that two-thirds of the writedowns were due to currency and interest rate effects.

Bayer on Sept. 30 had predicted impairment charges in the mid to high-single-digit billion-euros range on agricultural assets and warned of a slight decline in 2021 core earnings per share.

Bayer struck an $11 billion outline agreement with U.S. plaintiffs’ lawyers in June but a judge later took issue with a side arrangement on future cases that may yet be lodged, known as a class plan.

Addressing those concerns will prove about $750 million more costly, Bayer said on Tuesday.

Bayer said 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’s shares were down 0.6% at 0850 GMT, marking a loss of 22% since Bayer first flagged write-downs and a likely decline in 2021 earnings on Sept 30.

“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 charges more than offset combined gains booked in the quarter from the sale of its Animal Health business to Elanco and the divestment of a stake in industrial park operator Currenta of 5 billion euros.

That resulted in a net loss of 2.7 billion euros compared with an average analyst projection of 1 billion euro in net income.

Bayer said that 88,500 of the 125,000 glyphosate claims in the class settlement have been agreed in principle and that it was hoping to make considerable progress over the next few months.