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How Bayer-Monsanto Became One of the Worst Corporate Deals—In 12 Charts


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How Bayer-Monsanto Became One of the Worst Corporate Deals—In 12 Charts

https://www.wsj.com/articles/how-bayer-monsanto-became-one-of-the-worst-corporate-dealsin-12-charts-11567001577?mod=hp_lead_pos5

Ten days after

Werner Baumann

became chief executive of Bayer in May 2016, he made a bid for Monsanto that was designed to turn the inventor of aspirin into the world’s biggest crop-science business.

Within weeks of the acquisition closing in June 2018, Bayer lost a lawsuit alleging Monsanto’s Roundup herbicide causes cancer. Another two defeats followed, landing Bayer with damage payments of more than $190 million. More cases are coming: A total of 18,400 plaintiffs have filed suits.

Bayer is appealing and says Roundup is safe. But its shares have dropped roughly 30% since the deal closed, making it one of the worst corporate deals by lost share value so far in the ballpark of AOL’s combination with Time Warner and

Bank of America

’s acquisition of Countrywide. Its market capitalization is now close to what the company paid for Monsanto alone, meaning the value of one entire company has almost entirely evaporated.

Shareholders withdrew confidence in Mr. Baumann at the last general meeting, a first in postwar Germany.

How did it all go so wrong? These charts help tell the story.

The idea

Mr. Baumann, who was Bayer’s strategy chief before he became CEO, had long set his eyes on Monsanto, people familiar with his thinking said. A Bayer spokesman said Mr. Baumann wasn’t available to comment.

The U.S. company, he calculated, would turn Bayer’s smaller agrochemicals business into a market leader by combining its pesticides with Monsanto’s seeds and high-tech crops.

Bayer sales before and after Monsanto

Bayer sales before and after Monsanto

Bayer sales before and after Monsanto

Bayer sales before and after Monsanto

It would also save Bayer $1.2 billion a year in costs, help it develop new products more quickly and generate cash. The world’s rapidly increasing population would assure growing sales, as per capita farmland shrinks and farmers seek to raise productivity.

With patents on Bayer’s two top-selling drugs—blood thinner Xarelto and eye treatment Eylea—due to run out starting in 2023, the Monsanto deal would cushion a possible drop in pharmaceutical revenues. The extra heft would shield Bayer from unwanted suitors, people familiar with the Monsanto plans said.

Bayer estimated pharmaceutical revenue

Bayer estimated pharmaceutical revenue

Bayer estimated pharmaceutical revenue

Bayer estimated pharmaceutical revenue

In 2015, Monsanto’s pursuit of Swiss rival Syngenta AG had sparked a frenzy of agrochemicals transactions, threatening to leave Bayer marginalized. When the Syngenta deal fell through and Monsanto’s shares fell, Mr. Baumann made his move.

*Unaudited pro forma sales assuming combination for the full year, excluding disposals. ChemChina/Syngenta agreed to merger on Feb. 3, 2016. DuPont/Dow announced merger on Dec. 11, 2015. †Reported sales. Monsanto figures adjusted to calendar year 2015. Note: €1=$1.1.

The deal

Mr. Baumann had been CEO for less than two weeks when he surprised Monsanto executives with his offer during a visit to the U.S. company’s headquarters in St. Louis. He had the backing of Chairman

Werner Wenning,

according to people familiar with the matter.

After four months and several improved offers, and despite skepticism from investors, Mr. Baumann secured Monsanto’s agreement.

Deal

reached*

Sept. 14

128

$62.0B

64.0B

65.0B 

66.0B

May 23

July 14

Sept. 6

Sept. 14

By then, the deal had become the largest takeover by a German company in the country’s postwar history—to be paid all in cash.

Germany’s largest mergers and acquisitions, by value

Germany’s largest mergers and acquisitions, by value

Germany’s largest mergers and acquisitions, by value

Germany’s largest mergers and acquisitions, by value

With Monsanto on board, Mr. Baumann now had the tough task of selling his idea to his own shareholders. Days before the first offer, Mr. Baumann told reporters the company wouldn’t radically change under his tenure. Many investors had been pushing for a pharma deal. One concern, also at Bayer’s pharma unit, was the amount of debt raised to fund the Monsanto deal. Some feared it might crimp investment in the pharma side. Bayer has said the Monsanto deal wouldn’t hold back investments in other divisions.

Bayer’s net financial debt

Company forecast

4Q 2019

35.7B

June 7

Bayer closes its Monsanto acquisition

Bayer’s net financial debt

Company forecast

4Q 2019

35.7B

June 7

Bayer closes its Monsanto acquisition

Bayer’s net financial debt

Company forecast

4Q 2019

35.7B

June 7

Bayer closes its Monsanto acquisition

Bayer’s net financial debt

Company forecast

4Q 2019

35.7B

June 7

Bayer closes its Monsanto acquisition

Mr. Baumann’s plan to close the acquisition by late 2017 was postponed due to scrutiny by European and U.S. antitrust regulators. In 2017, Bayer issued a profit warning because of high inventories at its own Brazilian crop science business and slower sales for consumer health products in a competitive U.S. market.

The meltdown

Bayer finally became Monsanto’s official owner in June 2018, but it wasn’t immediately allowed to run the business; the Justice Department had demanded the companies first sell some assets. Bayer executives weren’t involved as Monsanto’s lawyers geared up for the first Roundup trial.

1. May 29, 2018: U.S. regulator approves Monsanto takeover.

7. Nov. 29: Bayer announces job cuts, disposals.

8. March 27, 2019: Jury sides with second Roundup plaintiff, orders Bayer to pay $80.3 million.

2. June 7: Bayer closes Monsanto acquisition.

9. May 13: Third jury verdict hits Bayer with $2.055 billion award.

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3. July 9: First Roundup trial begins.

10. June 26: Bayer hires more legal advisors, activist investor Elliott Management Corp. discloses stake.

4. Aug. 10: California jury finds Roundup caused plaintiff’s cancer, orders Bayer to pay $289.2 million.

5. Aug. 16: Bayer can officially control Monsanto after completing asset sales required by regulators.

11. July 15: Judge cuts second jury verdict by $55 million.

6. Oct. 23: Judge lowers damages award in the first case to $78.5 million.

12. July 25: Judge cuts award in third verdict from $2 billion to $86.7 million.

1. May 29, 2018: U.S. regulator approves Monsanto takeover.

7. Nov. 29: Bayer announces job cuts, disposals.

8. March 27, 2019: Jury sides with second Roundup plaintiff, orders Bayer to pay $80.3 million.

2. June 7: Bayer closes Monsanto acquisition.

3. July 9: First Roundup trial begins.

9. May 13: Third jury verdict hits Bayer with $2.055 billion award.

4. Aug. 10: California jury finds Roundup caused plaintiff’s cancer, orders Bayer to pay $289.2 million.

10. June 26: Bayer hires more legal advisors, activist investor Elliott Management Corp. discloses stake.

5. Aug. 16: Bayer can officially control Monsanto after completing asset sales required by regulators.

11. July 15: Judge cuts second jury verdict by $55 million.

6. Oct. 23: Judge lowers damages award in the first case to $78.5 million.

12. July 25: Judge cuts award in third verdict from $2 billion to $86.7 million.

1. May 29, 2018: U.S. regulator approves Monsanto takeover.

7. Nov. 29: Bayer announces job cuts, disposals.

8. March 27, 2019: Jury sides with second Roundup plaintiff, orders Bayer to pay $80.3 million.

2. June 7: Bayer closes Monsanto acquisition.

3. July 9: First Roundup trial begins.

9. May 13: Third jury verdict hits Bayer with $2.055 billion award.

4. Aug. 10: California jury finds Roundup caused plaintiff’s cancer, orders Bayer to pay $289.2 million.

10. June 26: Bayer hires more legal advisors, activist investor Elliott Management Corp. discloses stake.

5. Aug. 16: Bayer can officially control Monsanto after completing asset sales required by regulators.

11. July 15: Judge cuts second jury verdict by $55 million.

6. Oct. 23: Judge lowers damages award in the first case to $78.5 million.

12. July 25: Judge cuts award in third verdict from $2 billion to $86.7 million.

1. May 29, 2018: U.S. regulator approves Monsanto takeover.

2. June 7: Bayer closes Monsanto acquisition.

3. July 9: First Roundup trial begins.

4. Aug. 10: California jury finds Roundup caused plaintiff’s cancer, orders Bayer to pay $289.2 million.

5. Aug. 16: Bayer can officially control Monsanto after completing asset sales required by regulators.

6. Oct. 23: Judge lowers damages award in the first case to $78.5 million.

7. Nov. 29: Bayer announces job cuts, disposals.

8. March 27, 2019: Jury sides with second Roundup plaintiff, orders Bayer to pay $80.3 million.

9. May 13: Third jury verdict hits Bayer with $2.055 billion award.

10. June 26: Bayer hires more legal advisors, activist investor Elliott Management Corp. discloses stake.

11. July 15: Judge cuts second jury verdict by $55 million.

12. July 25: Judge cuts award in third verdict from $2 billion to $86.7 million.

The court ordered Monsanto to pay $289.2 million in damages on Aug. 10, 2018. The size of the award, later reduced to $78.5 million, spooked markets and dismayed Bayer directors, according to people close to the top executives. A sharp rise in the number of new plaintiffs further clouded the outlook.

July 11, 2019

18,400 plaintiffs

Cumulative number of plaintiffs

March 20, 2015

The International Agency for Research on Cancer says glyphosate likely has the potential to cause cancer in humans

July 11, 2019

18,400 plaintiffs

Cumulative number of plaintiffs

March 20, 2015

The International Agency for Research on Cancer says glyphosate likely has the potential to cause cancer in humans

July 11, 2019

18,400 plaintiffs

Cumulative number of plaintiffs

March 20, 2015

The International Agency for Research on Cancer says glyphosate likely has the potential to cause cancer in humans

July 11, 2019

18,400 plaintiffs

Cumulative number of plaintiffs

March 20, 2015

The International Agency for Research on Cancer says glyphosate likely has the potential to cause cancer in humans

The aftermath

Bayer has defended the deal and proclaimed the safety of Roundup. It announced a restructuring late last year in a bid to boost profits, selling various assets and cutting 10% of its workforce. People familiar with the company said the moves were geared to boost investor confidence. Mr. Baumann said the plan was independent of the Roundup legal woes. The share price continued to fall.

At the company’s general meeting in April, shareholders withdrew confidence in Mr. Baumann in the first ever no-confidence vote in a CEO of a company listed on Germany’s main stock exchange. Mr. Wenning said at the time he deeply regretted the vote but stressed that the board stood behind Mr. Baumann. Bayer later hired an additional legal adviser and boosted oversight of its legal issues, bowing to pressure from investors.

The results of routine confidence votes by shareholders at their annual meeting:

The results of routine confidence votes by shareholders at their annual meeting:

The results of routine confidence votes by shareholders at their annual meeting:

The results of routine confidence votes by shareholders at their annual meeting:

With three verdicts issued against Bayer so far, analysts’ estimates of its total Roundup liability vary between €5 billion and €25 billion ($5.5 billion and $27.7 billion).

Share your thoughts

How will Bayer’s Monsanto acquisition play out? Join the discussion below.

Some jurisdictions already ban Roundup’s active ingredient, glyphosate, and lawmakers elsewhere have discussed implementing new bans. Analysts and investors have raised questions about the true value of the inherited Monsanto business. Some have speculated that it would make sense for the company to break up.

In December, Mr. Baumann predicted a steady climb in sales and profits through 2022 with the help of Monsanto.

What Bayer would look like if it meets all its growth targets

What Bayer would look like if it meets all its growth targets

What Bayer would look like if it meets all its growth targets

What Bayer would look like if it meets all its growth targets

Third-quarter results released in July showed unexpected weakness in the crop-science business, which includes Monsanto, due to extreme weather.

With Bayer succeeding in getting two more trial verdicts substantially reduced and investors pinning their hopes on a fast settlement, shares have come up from June’s seven-year low. They’re currently down around 50% from their high of April 2015, when Bayer was the most valuable German company.

Write to Ruth Bender at Ruth.Bender@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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