Bayer investors’ securities class action over Monsanto merger proceeds

Investors suing Bayer secured approval from a federal judge to proceed with a securities class action accusing the German pharmaceutical and chemical maker of deceiving them about properly analyzing the risks of acquiring Monsanto in a multibillion- dollar deal.

Bayer in a statement defended its merger with Monsanto.

U.S. District Judge Richard Seeborg pointed to massive trial verdicts and a rejected settlement proposal as evidence that Bayer may have lied to investors about the upside of the acquisition. "Deception concerning mismanagement" and "misleading statements concerning due diligence" are grounds for a lawsuit, he concluded in his ruling Tuesday.

Bayer's statement issued after the judge's decision said, "We believe the complaint failed to allege conduct and related losses necessary to support this action under the law. Reports by independent experts have confirmed that Bayer's management conducted the acquisition in an appropriate manner and in line with their duties."

The $63 billion deal closed in 2018 shortly after a San Francisco jury awarded $250 million to a dying groundskeeper who alleged that exposure to Roundup, Monsanto's signature glyphosate based weed killer, caused his non-Hodgkin's lymphoma. Bayer's stock price plummeted in the wake of two more adverse jury verdicts.

Bayer announced a $10 billion settlement to resolve the entirety of lawsuits over its weed killers, but a federal judge rejected the portion of the deal seeking to prematurely settle future claims.

Pension funds invested in Bayer brought a securities class action just days after the settlement was nixed, alleging that the company's senior executives recklessly acquired Monsanto in a bid to prevent a hostile takeover. Sheet Metal Workers National Pension Fund v. Bayer Aktiengesellschaft, CV20-04737 (N.D. Cal., filed July 15, 2020).

Seeborg advanced claims that Bayer executives misled investors about the quality of its due diligence. He found the company knew it had "done materially less homework than was customary" before closing a deal of the magnitude of its merger with Monsanto, pointing to allegations that it neglected to review internal company documents on the safety of glyphosate.

"The complaint alleges more than that the Monsanto deal was bad in hindsight," he wrote. "Instead, it alleges that the defendants advanced in pursuit of the merger despite being aware that acquiring Monsanto brought significant risks, all the while assuring investors they had fully assessed those risks themselves."

There was widespread scrutiny of Bayer's acquisition of Monsanto, which was beleaguered by lawsuits accusing it of suppressing scientific studies indicating that exposure to its glyphosate causes cancer. Bayer's stock price dropped by roughly 40% after the deal closed, leading to a shareholder vote by disgruntled investors.

Seeborg concluded that the lawsuit adequately alleged that the company misrepresented Monsanto's legal exposure. Those misrepresentations were only identified, he concluded, through adverse trial verdicts and a judge's rejection of a global settlement because the deal was too low.

Until a verdict in one of the cases, investors would have viewed the links between Roundup and cancer as "unproven, untested allegations, especially when Monsanto had denied any link between cancer and its product," he wrote.

But the judge did not allow all of the claims in the lawsuit to proceed. He disapproved of allegations that Bayer intended to lie to investors about the safety of glyphosate, noting that there are "no particularized facts to support the allegation that defendants recklessly disregarded links between glyphosate and cancer."