Sales rose more than 10 per cent in the first nine months of the year. Ebitda profits before special items jumped more than a quarter. Nine-month results from Bayer on Tuesday showed the German pharmaceutical and agrichemicals conglomerate’s resilience in the face of a downturn.
The strong figures, however, did not hide the black legal cloud that still hangs over Bayer. This arises from its $63bn acquisition in 2018 of Monsanto, the US agrochemicals group. It makes the herbicide Roundup, which US courts have linked to cancer.
The cost of eventual legal outcomes cannot be priced accurately. Bayer has set aside $16bn so far for Roundup legal action.
Bayer shares are below €51, almost two-thirds of their peak in April 2015, a year before its bid for Monsanto. They trade on a forward price-to-earnings ratio of less than seven, much lower than rivals.
The past couple of years have nevertheless been good for Bayer. The sharp rise in global food prices has boosted demand for its seeds and weed killers. Adjusted sales in the first nine months were up almost 17 per cent over the previous year in Bayer’s crop science division.
Bayer highlighted how sales growth was driven by higher prices for the herbicide glyphosate, the main ingredient in Roundup. But the company warned glyphosate prices were already declining in the third quarter.
Sales in Bayer’s pharmaceuticals operations were helped by new products. The business is fighting market fears that the expiry of patent protection on important products will depress profits.
Bayer has some defensive qualities. So, in theory, did the Monsanto deal. Bayer saw attractions in combining its expertise in herbicides with Monsanto’s strength in seeds.
Unfortunately, the legal liabilities Monsanto dragged in with it will continue to brake any share price gains. The company can support quarterly profits by keeping costs reined in. But the stock remains a bet on unpredictable US court cases — and a dire warning to acquisitive chief executives to balance strategic imperatives with extensive due diligence.
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