Translation of the original recent interview in German of Werner Baumann, CEO of Bayer AG: Glyphosate gate

Mr. Baumann, Bayer stock has gone down 40 percent since you took office. At what point does your resignation become inevitable?

The share price is strongly affected by the liability litigation concerning glyphosate in the United States. The stock market is greatly overreacting to this. The Board of Management has the full backing of the Supervisory Board.

Now a second jury has found that the weedkiller glyphosate causes cancer.

This contradicts the scientific findings. We regret that the jury didn’t follow those findings. That in turn unsettled the stock market, partly because it wrongly assumed that the case in question was a “bellwether trial” with a binding effect on future cases. This is not true.

Even so, it’s already clear that the Annual Stockholders’ Meeting at the end of April will be the day of reckoning. People are already calling you the “biggest and fastest value destroyer in the history of the DAX.”

I’ve read that too, but I’m concentrating on my work. We had a successful year in 2018 and achieved good growth despite all the challenges. And we’ve set ambitious targets for the period through 2022. Of course the stockholders have a valid interest in hearing at first hand how we view the current situation and what conclusions we draw from it. And it goes without saying that I’ll be explaining that. Acquiring Monsanto was the right thing to do and we took every care in doing so.

Before the deal, Bayer was Germany’s most valuable company. How can it be that Bayer’s market value today only just about equals what it paid for Monsanto?

 As I said already: when the stock market evaluates uncertainties, it tends to exaggerate. Speculation about payments of damages is weighing on our share price. The company’s good condition, its outstanding growth prospects, its earning power and its portfolio – all that is barely reflected in the current market capitalization.

The share price peaked at over 140 euros back in 2015. Since then it has fallen and now stands at 60 euros. Can the market be so wrong over such a long period?

There are a variety of factors involved, by far the most important being the uncertainty over the litigations. Another factor, for example, is that we had a few setbacks in the pipeline of our Pharmaceuticals Division in the past two to three years. So the market doubts whether we can continue growing as strongly as we have in previous years. We’re reacting to this by strengthening our pipeline with developments of our own and also looking increasingly to external innovation.

The main point of criticism regarding Monsanto is that you underestimated the legal risks. Were you not vigilant enough?

The Board of Management considered this transaction very carefully, even before we approached Monsanto and all the more so afterwards. First we worked with all the information that was available externally, and then in the course of the procedure we carried out the usual due diligence for the acquisition of a listed company. We also brought in external consultants to assess the risks involved with glyphosate in particular. I can assure you that everything was done with the utmost care.

The fact is that you’re now being inundated with lawsuits. What provisions do you have on the balance sheet for the future litigations?

 As we can’t yet quantify their extent, we have only established provisions for anticipated legal and defense costs. Last year we set aside a total of 660 million euros for all the litigation in the group.

So that doesn’t include impending payments of damages?

Correct.

In the Johnson case alone, you’ve been ordered to pay 78 million dollars in damages. Multiply that by 11,000 lawsuits, and you have an overall loss of over 800 billion euros. What insurer is going to pay that?

Projections of that sort completely ignore the realities. First-instance judgments with high damages awards are frequently revoked or the damages are at least greatly reduced. In the end they’re often very much lower. We are insured for liability risks to the extent usual in the industry. And let me say quite clearly once again: we consider the Johnson verdict to be factually incorrect and unfounded. We have therefore filed an appeal.

To be cynical, the only good thing about the flood of lawsuits is that it acts as a poison pill to ward off potential attackers. Otherwise Bayer would have long been a takeover target in view of the drop in its market capitalization.

The same applies to us as to anyone else: ultimately, the only thing that protects a listed company is an attractive business with an attractive valuation. That’s what we’re working to achieve.

Don’t you worry that you’ll lose your best people, your most capable researchers, in view of the impending downward spiral?

No. The mood within the company is quite different from what is being publicly suggested. It’s clear from all the discussions I have in-house that the workforce and management are firmly committed to the company and confident that we are in a position to overcome this situation, which admittedly isn’t an easy one.

To stem the drop in the share price, you announced a package of measures last fall that means cutting 12,000 jobs. What other ideas do you have for reversing the trend ?

The most important thing now is to achieve our ambitious targets. We’re increasing productivity, profitability and innovation capacity. One day that will pay off on the stock market, too.

Activist stockholders like Elliott are already moving in closer. How aggressive is their approach when they talk with you directly?

We don’t comment on individual stockholders or potential investors on principle.

Would it be conceivable to split up the group and spin off the pharmaceuticals business if things get even worse?

Since the separation of Covestro in 2014 we have been a life science company with three main pillars: the agriculture business, pharmaceuticals and over-the-counter health products. We aim to continue developing all three pillars. All three are attractive markets.

Strategies don’t have to last forever ...

... that’s true – but I’d like to stress again that we have a very clear strategy for continuing the successful development of our three divisions under the Bayer umbrella. With Animal Health, it’s different: although this is an attractive, high-margin business, we’ve decided to invest our resources in growing our three core businesses. As a result we will divest Animal Health.

Would you roll back the Monsanto deal if you could, or are you still saying it was a good idea?

Acquiring Monsanto was and remains a good idea. We’re the leading company by far in the agriculture business. We have fantastic products, excellent employees and a strong regional structure. Like no other company in the world, this puts us in a position to supply farmers with products that help them meet the growing demand for high-quality as well as affordable food and feedstuffs. In doing this we’re combining economy with ecology in agriculture

... provided that you disregard the health risks of glyphosate that the World Health Organization found in 2015.

I’ll say it again: glyphosate, when used properly, is a safe product that poses no cancer risk. If the situation were any different, we would take it off the market. We’re confident that the facts will also convince the courts in the end. Incidentally, several WHO agencies have investigated glyphosate, but the IARC is the only one that links glyphosate to cancer. A very large-scale, 20-year observation study in the United States – financed by the government, not by the manufacturer – found no link between glyphosate-based herbicides and cancer. Nowhere does glyphosate feature in oncologists’ diagnosis guidelines or in clinical practice. What’s more, regulatory authorities worldwide don’t share the IARC’s opinion. Those authorities have now had four years since that opinion was issued to review their positions – and wherever they have done so, they have reached the same conclusion as before: that glyphosate is safe. For example, the Canadian health ministry said in a statement that it had “left no stone unturned” and then confirmed its final decision. It stressed that no regulatory authority in the world currently considers glyphosate as a cancer risk at the levels to which humans are exposed.

“Now Bayer is paying for a manager’s megalomania.” That’s the worst thing that’s been said about you recently. How far do you let that kind of criticism affect you, Mr. Baumann?

I read that too and couldn’t make much sense of it. If that’s the impression some people have, I have to live with it. But that description has nothing to do with me personally. I serve the company and work every day to do the right thing for Bayer.

Motions have been submitted for the Annual Stockholders’ Meeting that your actions not be ratified. What level of approval does a CEO need to be able to remain in office unscathed?

In the year 2018, to which the ratification relates, we managed the business according to our best judgment and with the necessary commercial care. At the same time, we’re obviously not happy about the glyphosate lawsuits. I can understand why our stockholders are upset, as they are suffering massively from the situation. It affects me too, by the way, as I’ve invested heavily in our stock.

Has the pressure of events harmed your relationship with your long-time mentor and current Chairman of the Supervisory Board, Werner Wenning?

No. The Board of Management has the full support of the Supervisory Board. Mr. Wenning is an important discussion partner for the entire Board of Management and for me personally.