Bayer will pay up to $10.9bn to settle a wave of lawsuits over the potential carcinogenic effects of its herbicide product Roundup, which have plagued the company since its takeover of US agrichemical rival Monsanto two years ago.
The German giant had been facing approximately 125,000 claims in the US, after early cases in California found in favour of the plaintiffs.
As part of the settlement, Bayer will pay up to $9.6bn to resolve outstanding claims, and set aside a further $1.25bn to deal with any future fallout, the company said.
Of those sums, up to $5bn will be paid out this year, with a further $5bn paid in 2021, financed largely from the company’s existing free cash flow and the proceeds of the sale of its Animal Health business, which is due to close in the coming months.
However, three cases that have already gone to trial will not be covered by the settlement, Bayer said, and an agreement has not yet been reached for roughly 25 per cent of the outstanding claims.
The deal will “bring a long period of uncertainty to an end”, said Werner Baumann, chief executive.
$63bn The price Bayer paid for Monsanto in 2018
“It is financially reasonable when viewed against the significant financial risks of continued, multiyear litigation and the related impacts to our reputation and to our business,” he added.
Bayer said it would be up to claimants’ lawyers to decide how much would be paid to individual plaintiffs, once legal fees were deducted.
Mr Baumann, the architect of the Monsanto takeover who lost a vote of confidence by shareholders last year, said Bayer was likely to face a huge surge in claims because of relentless TV advertising from US legal firms.
“In 2019 alone, plaintiffs’ attorneys and their surrogates spent an estimated $100m on TV ads attacking Roundup,” he said.
Kenneth R Feinberg, the US court-appointed mediator for the settlement talks, said the agreements were “designed as a constructive and reasonable resolution to a unique litigation”.
Bayer acquired the US crops group Monsanto for $63bn in 2018 — a deal that catapulted the German group into the market leader position but also saddled it with the legal fallout from Roundup, originally a Monsanto product.
The Leverkusen-based company has been locked in a fierce and costly legal battle over the glyphosate-based herbicide since August 2018, when a California court issued the first ruling linking it to cancer, awarding claimants substantial compensation.
The $10.9bn Roundup settlement “comes at a high price which will delay the company’s deleveraging trajectory”, said Moritz Melsbach, an analyst at rating agency Moody’s, as cash that could have been used to reduce the debt accrued to finance the Monsanto takeover will now be put towards the agreement.
Bayer will also pay a total of approximately $820m to settle cases related to water pollution from the use of now-banned toxic chemical compounds known as PCBs, and $400m to settle allegations that its dicamba-based herbicide caused damage to crops.
The company continues to deny any wrongdoing.
“Glyphosate-based herbicides are among the most rigorously studied products of their kind, and four decades of science support their safety and that they are not carcinogenic,” Mr Baumann told investors.
He added that trials by jury risked “more erroneous decisions”.
Bayer’s shares rose more than 1 per cent in after-hours trading following the announcement.