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Executives at Bayer face a road filled with Monsanto integration growing pains and legal battles stemming from glyphosate.

Bayer stocks surge after judge favors slashing damages in Roundup case

The ruling could shift momentum in Bayer's favor as it defends against thousands of U.S. lawsuits.

by Joel Rosenblatt

Bayer AG shares surged after the company won a tentative ruling slashing a $289 million verdict in the first trial over claims that Roundup weed killer causes cancer, with a judge saying she’s considering a new trial.

A San Francisco state judge indicated ahead of a hearing Wednesday on the company’s challenge to the August verdict that she’s inclined to set aside $250 million in punitive damages against Monsanto, which Bayer acquired this year. The judge said a comment by plaintiff’s attorney Brent Wisner, who told jurors that Monsanto executives were putting “Champagne on ice” in anticipation of a modest damage award, was one reason. 

The ruling could shift momentum in the company’s favor as it defends against thousands of U.S. lawsuits. The German company’s shares rose as much as 6.6% in Frankfurt trading, the biggest gain in almost seven years. 

Superior Court Judge Suzanne Ramos Bolanos said that even if she doesn’t vacate the punishment damages, she “would grant a new trial on grounds of insufficiency of the evidence to justify the award for punitive damages.” She also questioned whether the evidence introduced at trial supports the jury’s conclusion that Bayer was liable for plaintiff Lee Johnson’s non-Hodgkin lymphoma based on his exposure to the key ingredient in Roundup, called glyphosate.

Revisit Arguments

“A retrial would enable Bayer to revisit its arguments around the safety of its glyphosate-based products,” Ian Hilliker, an analyst at Jefferies LLC in London, wrote in a note to clients. “On a best case scenario this obviously provides the company a possibility it could win the retrial. Even if it was to lose again, there is also the possibility any damages could be set at a more reasonable level.”

If the company can persuade the judge to erase or slash the nine-figure verdict -- the first case to go to a jury among 8,700 people in the U.S. who blame the popular herbicide for their cancer -- legal experts say some plaintiffs may be less eager to pursue their claims. 

Lawyers for the plaintiff and the company declined to comment on the tentative ruling ahead of Wednesday’s hearing.

Related: Champagne Remark May Cost Lawyer $289 Million Award From Bayer

Jonas Oxgaard, an analyst at Sanford C. Bernstein & Co., estimated that Bayer’s market value was discounted by as much as $15 billion because the San Francisco verdict represents the larger cloud of Roundup liability trailing the company after it acquired Monsanto. More trials are scheduled for February.

‘Huge’ 

“Getting the first ruling overturned would be huge for Bayer -- likely reversing most of the discount,” Oxgaard said in a recent email. 

The $289 million award was the second-largest of the year for a product defect case in the U.S. and the ninth-largest verdict overall. The punitive part of the award is so “excessive” that it “shocks the conscience,” Monsanto argued in a court filing.

Bayer said in a statement on Thursday it “continues to believe that the evidence at trial does not support the verdict and the damage awards.”

Besides dealing with some inherited legal challenges, the German company is scrutinizing its portfolio in the aftermath of the $63 billion Monsanto acquisition.

Bayer, which also makes prescription drugs and veterinary products, is considering a sale of its animal-health business as part of a broader review, people familiar with the company’s plans said. A sale isn’t imminent, said the people, who asked not to be named because the appraisal hasn’t been made public. The business could be worth about 6 billion euros ($6.9 billion), which could be reinvested in the pharmaceutical operations, according to Hilliker.

--With assistance from Joshua Fineman and Tim Loh.

To contact the reporter on this story: Joel Rosenblatt in San Francisco at [email protected]

To contact the editors responsible for this story: Elizabeth Wollman at [email protected] Thomas Mulier

© 2018 Bloomberg L.P

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