BAYN Bayer AG

By Ruth Bender 

In April last year, Bayer AG Chief Executive Werner Baumann was on defense. The architect of one of the most disastrous acquisitions in German corporate history, he had become the country's first chief executive to lose a vote of confidence by shareholders.

Almost a year later, with the German chemicals and pharmaceuticals company closer to settling more than 42,000 lawsuits inherited from its acquisition of U.S. agriculture giant Monsanto Co., and with a group-wide restructuring under way, investors say Mr. Baumann might just manage to fix the mess he made.

Bayer and plaintiff lawyers are approaching a deal in which Bayer would pay a total of roughly $10 billion for current and future plaintiffs who allege the company's Roundup herbicide causes cancer, according to people familiar with the negotiations. Many analysts say a settlement in that range would be positive for Bayer.

Bayer declined to comment on the amount or time frame for a settlement. The company argues that Roundup is safe when used as instructed and has appealed the first three verdicts.

Expectations that the company could soon find a reasonable way out of its legal morass have helped pull Bayer's shares up roughly 50% since they hit a seven-year low of roughly EUR52 last June.

But even Mr. Baumann's supporters say his window for fixing Bayer might not stay open much longer. On April 28, the company holds its next regularly scheduled shareholder meeting and many investors expect Bayer to share at least a partial solution or progress on how to resolve the legal battle before then.

Absent any progress, Mr. Baumann could face another no-confidence vote, with another no being harder to survive, investors say.

Mr. Baumann's $63 billion Monsanto acquisition in June 2018, which he had been working on since well before becoming CEO that same year, backfired after Bayer lost the first Roundup cases before California juries, raising alarm in the market about liabilities the company could face. Last spring, with Bayer's market capitalization down more than a third since the first trial loss, investors rejected a vote of confidence in the executive board, a postwar first for a Dax-listed company.

Strong support from the company's nonexecutive directors helped Mr. Baumann survive the vote. But investors also say he heard their message.

The company last June boosted oversight of its legal defense, including by creating a special board committee to monitor Roundup lawsuits and naming a lawyer with expertise in mass torts to advise the board. In October, it added an agriculture expert to its board. All those measures were demanded by investors, including activist investor Elliott Management Corp.

Another U-turn was Mr. Baumann's agreement to engage in settlement talks with Roundup plaintiffs after he had previously insisted that Bayer was willing to fight a yearslong court battle.

Ingo Speich, head of sustainability and corporate governance at Bayer investor Deka Investment, said the CEO also addressed operational concerns by selling Bayer's animal health unit and consumer-care brands on time and at good prices.

"Is he responsible for the legal issues? Yes. But he also showed that he can keep the business together," said Mr. Speich, nine months after blaming Mr. Baumann for "infecting a healthy Bayer with the Monsanto virus."

Within Bayer, employees say, Mr. Baumann has also worked to restore confidence and team spirit following what some describe as a meltdown in morale a year ago. Last spring, he held video town halls to reassure staff each time the company faced a new legal setback in the U.S., according to one midlevel executive.

"Last year people talked about the lawsuits all the time, now it's mostly business as usual," the person said. A lull in trials has helped, according to people familiar with the company: Bayer and plaintiff lawyers have agreed to postpone dozens of cases since they started settlement talks last fall.

Among the company's many deeply anchored traditions is its ownership of Bundesliga soccer club Bayer 04 Leverkusen, whose home matches are must-attend occasions for top executives. At a recent soccer match with fellow senior managers, Mr. Baumann seemed optimistic about the future of the company and how it is growing, according to a person present at the meeting.

"There is a feeling there is light at the end of the tunnel," the person said.

Mr. Baumann, the son of a baker, spent over 30 years working his way up from Bayer's finance department to CEO. People who know him say he is cerebral, detail-oriented and rational. The CEO often brings a small notebook to meetings where he writes down questions he needs to follow up on, according to people who have worked with him. Others say he can summon minute details, such as the number of participants in a continuing clinical drugs trial, off the top of his head.

With the exception of Mr. Baumann's predecessor, the Dutch-American Marijn Dekkers, Bayer CEOs have always been Bayer lifers. Many, like Mr.Baumann and current Chairman Werner Wenning, even hail from the Rhineland region, where Bayer is based.

Several of the group's top leaders, Messrs. Baumann and Wenning included, lived through a similar crisis at Bayer in the early 2000s, when the company faced thousands of U.S. lawsuits over its cholesterol-lowering drug Baycol. Bayer had to pull the drug after it was linked to serious injuries and even death, and the company's share price fell to an all-time low of EUR10.

During his time as CEO, Mr. Wenning improved Bayer's position by spinning off assets, cutting jobs and eventually settling the claims for much less than investors had feared.

When Bayer set out to grow again, Mr. Baumann, described by many as Mr. Wenning's protégé, proved himself a talented number cruncher during the integration of German pharmaceuticals company Schering AG, according to people present at the time.

The fact that Mr. Wenning did pull Bayer out of trouble made him something of a legend within the company. People familiar with Bayer said Mr. Baumann would need to deliver much more than a settlement to achieve a similar status.

Besides striking a settlement at the low end of expectations, investors say the CEO still needs to demonstrate how Monsanto will make Bayer thrive.

The lawsuits aside, Roundup is facing competition from a determined rival. Seed and pesticide maker Corteva Inc., is making moves to woo farmers away from Bayer products.

For Deka's Mr. Speich, a full judgment on the Monsanto purchase -- and thus on Mr. Baumann -- will only be possible some two years from now, once the agriculture business is fully integrated.

Mr. Baumann has said repeatedly that buying Monsanto was the right move, saying it will position Bayer as leader in a market with enormous growth potential given the world's fast-growing population.

Meanwhile, once the legal fight is resolved, some analysts say investors could push Bayer to consider the merits of splitting its pharmaceuticals and crop-science businesses. People familiar with Bayer's thinking said the company would likely fight any push for a split, arguing that its existing plan to boost sales and profit through 2022 will create more value for shareholders.

"A settlement would of course be positive but I think it will grant Mr. Baumann only a short respite," said Markus Mayer, analyst from Baader Bank.

-- Ben Dummett in London, Laura Kusisto in New York and Jacob Bunge in Chicago contributed to this article.

Write to Ruth Bender at Ruth.Bender@wsj.com

(END) Dow Jones Newswires

February 10, 2020 06:18 ET (11:18 GMT)

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