German multinational Bayer underestimated the risks of acquiring Monsanto. Now, the company is desperately seeking to contain the damage by selling business divisions and cutting jobs. So far, though, none of these moves have helped.
In Werner Baumann's world, the truth is one-dimensional, as he likes to put it, based on facts and scientific findings, studies and expert opinions. That's why the head of Germany's Bayer Group has no doubts about the safety of glyphosate. He says he would acquire Monsanto, the American manufacturer of the controversial crop herbicide at any time, "without any ifs, ands or buts."
But the world outside Bayer Group views things differently. A large segment of the public considers glyphosate to be toxic and Monsanto itself to be the epitome of evil. Thousands of farmers with cancer have filed lawsuits against Monsanto's new owner, and investors now view Bayer shares as high-risk stocks they don't want to include in their portfolios. This has made the past year one of the most difficult in Bayer Group's 155-year history. The new year could prove to be even more turbulent, and it's possible the situation could grow even more perilous for the company.
"Life is always life-threatening," says Baumann. "In both the corporate and private spheres, we make decisions that entail risks every day." But of course, "all reputation issues and risks were actively identified and assessed" in the course of the Monsanto acquisition.
It is now clear, however, that the company clearly underestimated them. Bayer's supervisory board unanimously approved the $63 billion acquisition, the most expensive in German business history.
Shedding Market Capitalization
Bayer has shed more than 30 billion euros from its market capitalization since the acquisition in the summer of 2018, largely because Monsanto lost one of the first lawsuits against it relating to glyphosate. Bayer executives have been almost desperate in their attempts to reassure shareholders:
The company is cutting huge numbers of jobs, selling off parts of the company and has even announced the repurchase of its own shares -- a step usually taken by companies swimming in money that are unsure how to invest it. So far, though, none of these measures have had the desired effect.
And what happens if other plaintiffs prevail and the company is not able to appeal those decisions, as it can still do in the first lawsuit? Will the stock then become a pawn for speculators and the corporation the target of an attack by activists who plan to break Bayer up because the individual parts could be worth more than the whole?
It would spell the end of a company that is an intrinsic part of Germany and its business history.
Bayer executives and board members who were responsible for the acquisition must now be second-guessing themseves, wondering if perhaps they weren't careful enough. And whether they underestimated the legal and reputational risks the acquisition would bring with it. Not to mention whether they allowed themselves to be blinded by the actual and supposed synergy effects.
The man who was partly responsible for Bayer's restructuring for more than a decade and a half has a giant office in the company's time-honored former administrative offices in Leverkusen. Werner Wenning served as chairman of the executive board from 2002 to 2010 and he has headed the supervisory board since 2012. During that period, Bayer spun off its chemicals and plastics divisions and floated them on the stock market. Wenning also pushed for the acquisition of Monsanto.
Déjà-Vu for Bayer
Wenning, a serious-looking 72-year-old, is sitting a massive leather armchair, a large pot of tea bearing his signature in front of him. He is at pains to exude calm. "I've already experienced so much," he says, adding that the current crisis has triggered a bit of "déjà-vu," reminding him as it does of the cerivastatin (Lipobay) crisis in the early 2000s, his first major test as newly installed CEO. The cholesterol-lowering drug had to be withdrawn from the market in 2001 because of its severe side effects and Bayer faced lawsuits from thousands of people affected. For a time, Bayer's share price plummeted to around 10 euros, and the company's banks refused to renew its credit lines.
Graphic: Bayer's declining stock price
And yet the situation today is quite different, says Wenning. He paints a picture of a perfectly healthy "life science" company whose pillars include nutrition (crop science) and health, with a very solid balance sheet and a strategy that few analysts would question....MUCH MORE
He cannot understand why critics compare the Monsanto takeover with the DaimlerChrysler case, a prime example of a merger that failed because of the delusions underlying it. "We didn't buy just any competitor," says Wenning. "We bought the best agricultural company in order to become the leader in this growth market."...
