Please ensure Javascript is enabled for purposes of website accessibility

Why a Roundup Lawsuit Caused Bayer A.G.'s to Tumble 11.3% Today

By Todd Campbell - Updated Aug 13, 2018 at 6:28PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A $289 million dollar verdict by a California jury could mean Bayer's on the hook for billions in damages tied to Roundup.

What happened

After a court in California awarded $289 million to a man claiming his cancer was caused by top-selling weed killer Roundup, shares in Roundup manufacturer Bayer AG (BAYR.Y -1.25%) fell 11.3% on Monday.

So what

The San Francisco jury awarded the substantial figure to Dewayne Johnson, a former school groundskeeper who sued Monsanto after developing non-Hodgkin's lymphoma following years of Roundup use. 

A gavel rests on $100 bills spread out on a table.

IMAGE SOURCE: GETTY IMAGES.

The suit followed the release of a report by the World Health Organization's International Agency for Research on Cancer (IARC) in 2015 that classified glyphosate -- the herbicide in Roundup -- as "probably carcinogenic to humans." According to Johnson's lawsuit, the IARC's working group found an increased risk of non-Hodgkin lymphoma with exposure to glyphosate.

Monsanto's lawyers presented conflicting study results supporting Roundup's use, but clearly, the jury wasn't convinced Roundup wasn't responsible for Johnson's cancer, and potentially, that's a big problem for Bayer, which just completed its $63 billion acquisition of Monsanto in June. Out of the $289 million awarded to Johnson, $250 million was awarded in punitive damages to Johnson after the jury concluded the company and its officers acted with "malice" and "oppression."

Now what

There are over 4,000 similar cases pending, and the size of Johnson's verdict is likely to cause the number of lawsuits to climb higher. Bayer will appeal the court's decision, and even if the appeal results in a negative outcome, there's still a good chance the size of the award to Johnson gets reduced. It's also possible that a settlement will be reached between Johnson and Bayer.

The combination of the size of the verdict and the number of lawsuits filed suggests that the total amount necessary to settle all cases could stretch well into the billions of dollars. The negative publicity associated with the award could also significantly reduce future Roundup sales and, perhaps, demand for Monsanto crop seeds specifically engineered to be resistant to glyphosate. Bayer's Roundup ready seeds are among the most widely planted seeds by farmers in the United States, accounting for 70% of corn and 90% of soybean seeds planted in 2010. 

Because investors hate uncertainty, the question marks associated with Bayer's future sales and potential damages due to lawsuits has shareholders hitting the exits. The impact on Bayer shouldn't be ignored, but investors might want to bear in mind that Roundup only contributes less than 3% to total revenue, and Bayer's after-tax net income was 4.5 billion euros in 2017. Regardless, until these lawsuits are resolved, investors are probably best off focusing on other investment opportunities.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bayer Stock Quote
Bayer
BAYR.Y
$17.02 (-1.25%) $0.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.