Bayer Weighs Billions in Capital Raise for Lawsuits, Shares Tumble

Bayer AG is seeking shareholder authorization to raise billions of euros through a capital increase in case it needs to quickly resolve its U.S. legal troubles, causing the stock price to plummet.

The German company will seek approval at its annual meeting next month for a potential equity offer of 35% of its current share capital, according to a letter from Supervisory Board Chairman Norbert Winkeljohann.

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The proceeds would be used exclusively for strengthening the balance sheet during a resolution of the US litigation and not to finance mergers and acquisitions, Winkeljohann said. Bayer doesn’t currently have specific plans to act on the authorization, he added.

Norbert Winkeljohann

The German company’s shares dropped as much as 10% on the news, the most intraday since November. The stock has tumbled since the acquisition of Monsanto in 2018, bringing its current market valuation to about €23 billion ($25 billion). That deal brought Bayer products that soon became subject to mass litigation in the U.S., including the weedkiller Roundup and toxic PCBs.

Chief Executive Officer Bill Anderson is trying to revive the fortunes of crisis-rattled Bayer, which only a decade ago was Germany’s most valuable company. The American CEO has pushed through operational changes in the past year designed, among other things, to speed up decision making. The revamp has resulted in about 7,000 job cuts.

Yet Anderson has struggled to tackle some of Bayer’s major challenges — from high debt levels to a weak pharma pipeline — thanks in part to the litigation. Last year, he resisted pressure from some investors to split up its conglomerate business model, with its divisions focused on agriculture, pharmaceuticals and consumer health. He cited the legal woes as one reason, but didn’t rule out such structural changes in the future.

Bayer’s proposed capital increase is prudent and could raise €11 billion in additional funding, Jason Miner, an analyst at Bloomberg Intelligence, said in a note. Still, it sends a negative signal about the potential size of litigation costs, he said.

Related: Bayer Must Pay $100M Over PCBs in Washington School, Jury Finds

Bayer has already spent about $10 billion of the $16 billion it had set aside for the US lawsuits over Roundup, which plaintiffs allege caused their cancer and Bayer insists is safe. The company has also agreed to pay almost $2 billion to settle cases related to toxic PCBs brought by U.S. states, cities and counties. More trials are looming on both fronts.

‘Insurance Policy’

Earlier this week, Bayer said it’s committed to “significantly containing” the legal risks by the end of 2026. While the company has managed to resolve tens of thousands of individual Roundup suits over the years, there’s still about 67,000 pending claims in the US, according to Bayer’s 2024 annual report. Bayer also needs to find a way to prevent new suits from being filed on the matter.

As part of the proposed AGM item, current shareholders would receive subscription rights for any capital raise, which would allow Bayer to avoid having to raise debt on unfavorable terms, Winkeljohann said. The authorization would last for three years.

Bayer’s leaders have already discussed the plan with many shareholders, who stressed that the company needs to proceed with caution because of the dilutive effect, Winkeljohann said.

“This step may be more of an insurance policy than anything substantive near-term,” Sebastian Bray, an analyst at Berenberg, said in an email. There may soon be important appellate decisions from US courts on both legal matters, he noted. “I imagine the company simply wants to be prepared.”

Top photo: Light trails left by passing traffic outside the Bayer AG pharmaceutical campus in Berlin, Germany, on Monday, Feb. 27, 2023.