The agrochemical giant Bayer is drowning in debt. He made a major mistake eight years ago – News

Eight years ago, Bayer wanted to strengthen its position in the field of agrochemicals, so in May 2016 it announced that it was buying Monsanto for $ 62 billion, the antitrust authorities approved the deal two years later. To date, this is the largest acquisition in the history of German companies. However, it didn’t turn out well at all. The deal is considered one of the worst corporate mergers in history.

The obstacle was just the product from Monsanto – the herbicide Roundup, which contains glyphosate and has become the subject of more than a hundred thousand lawsuits, mostly in the United States. The plaintiffs say the drug causes cancer. Several of them have already succeeded in court, which cost Bayer a lot of money. After all, a few years ago the company sent almost 11 billion dollars (255.5 billion CZK) for compensation payments.

Meanwhile, Bayer knew about the dangers of glyphosate even before it bought Monsanto. The World Health Organization’s International Agency for Research on Cancer declared the substance “probably carcinogenic” in 2015.

More than half of the lawsuits have already been resolved by settlement in 2020, but there are still about 54,000 active cases related to Roundup, and new ones may still be added.

Negative news about Monsanto has weighed on the German giant for several years. In addition, in addition to a storm of lawsuits, the acquisition also caused the company to be heavily indebted for the purchase of billions.

“Bayer had to issue new shares and increase its debt, which put a lot of pressure on its balance sheet. So the takeover of the company was immediately reflected not only in legal problems, but also in Bayer’s financial health, which caused a wave of criticism from investors and analysts. In 2019, shortly after the acquisition, Bayer’s shares fell sharply and the company began to lose investor confidence,” recalled Purple Trade analyst Petr Lajsek.

Over the past five years, the company’s shares have fallen 60 percent and have lost more than 20 percent since the start of this year alone. “Furthermore, there was recent news that a court in the US would review some of the closed cases, which immediately sent Bayer shares down again. After a brief rise in September to 30 euros per share, the shares fell again by more than 10 percent,” Lajsek told Novinkám.

The aforementioned weak economic situation in Germany is not helping Bayer either. As a result of the war in Ukraine, the price of energy has increased significantly, which represents another major problem for a company whose business is based on energy-intensive production processes.

“Germany, once considered the engine of the European economy, is now facing a recession, which is putting pressure on all businesses, including Bayer. This year, the country’s GDP should fall again. The recession may not end next year either, growth estimates are gradually declining. From the initial expected growth of one percent, it is already 0.8 percent. Germany is therefore among the worst countries in the EU in terms of economic growth. Only the Swedish and Estonian economies contracted more last year,” said Lajsek.

Last year, the producer of fertilizers and other chemicals or even medicines achieved a pre-tax profit of 10.6 billion euros (CZK 268 billion), which marked a year-on-year decrease of 27 percent. Another drop is expected this year, up to a billion dollars. At the same time, the company’s debt increased, which rose last year by 2.7 billion euros to 34.5 billion euros (CZK 872.5 billion).

“Negative sentiment, litigation and a worsening financial outlook are weighing on Bayer shares. Shopping is now more like catching a falling knife. In addition, there is speculation that Bayer could be forced to take radical measures, such as dividing the company into smaller parts. However, this could unlock the hidden value that is locked in the current form of the company and help it to survive in the long term,” says Lajsek.

“However, in March, Bayer suspended these considerations and will focus on cost reduction over the next two to three years. This should save up to two billion dollars a year from 2026,” said the analyst, adding that Bayer wins most of its lawsuits – 14 times in the 21 cases finally. In addition, history shows that the court often significantly reduces the original compensation amount. Instead of billions or hundreds of millions of dollars, the plaintiffs will receive only a fraction.