- Bayer will pay $10.9 billion to settle tens of thousands of lawsuits against its Roundup weedkiller product.
- The company will finance the legal obligation through a combination of cash on hand and asset sales.
- Monsanto will now focus on its core expertise of helping farmers feed the world.
Global chemicals and pharmaceutical giant Bayer (ETR: BAYN) said this week it would pay nearly $11 billion to settle tens of thousands of lawsuits that allege its Roundup herbicide weedkiller causes cancer. Bayer CEO Werner Baumann said on a Thursday Fox Business interview the settlement marks “closure” on the matter and it can now focus on the business.
Roundup is safe
The U.S. Environmental Protection Agency reconfirmed in early 2020 Roundup is safe and the company will continue selling to farmers as it is almost a necessity for a viable operation, the CEO said. Bayer will also continue selling Roundup to individual consumers as there is “absolutely nothing wrong” with the product.
The Roundup product was acquired by Bayer as part of the company’s acquisition of Monsanto in 2018. Monsanto at the time was a very unpopular company and came with a large legal overhang and risk. Yet, the rationale behind the acquisition was based on the strength of a combined entity, Baumann said. Bayer boasts expertise that is “second to none” in chemistry while Monsanto oversaw the world’s best digital agriculture platform.
“Put the two together and you get substantially better, more sustainable solutions where farmers can do more with less,” he said.
The rationale behind the merger in 2018 remains unchanged today. In fact, the benefits of a combination appear to be more evident in 2020 given new and significant challenges to the food supply chain that are developing from COVID-19 “as we speak.”
How to pay the bill
Bayer will finance the first tranche of the settlement with $5 billion out of its own cash flow and proceeds from the sale of its Animal Health business that is expected to close in the coming weeks and generate proceeds of a pre-tax income of $5.3 billion.
Bayer has direct exposure to every industry that has never shut down during the global COVID-19 pandemic, including doctor offices, pharmacies, and food stores, he said. The ongoing business remains strong and will help finance what is due in 2021 and beyond.
Prior reports of the company accessing the debt market to pay the legal bill is not correct, the CEO said. Instead, the company will use new debt to refinance existing debt at more favorable rates.
Baumann: We provide solutions to farmers
Bayer is a company that strives to make a difference for the 800 million that are starving across the world today and the 10 billion people that will need to be fed over the coming decades, Baumann said. Farmers are in need of better solutions both today and in the future to “produce more with less.”
“We have a strong underlying business because we happen to be in the right business,” Baumann said.