OMAHA (DTN) -- A federal judge on Tuesday ruled that pension funds can move ahead with a class-action lawsuit against Bayer AG for allegedly making misstatements and failing to meet a standard of due diligence when Bayer acquired Monsanto and its liability risks over glyphosate.
The ruling out of the U.S. District Court for Northern California involves The Sheet Metal Workers National Pension Fund, the International Brotherhood of Teamsters Local 710 Pension Fund and a pair of pension funds for the City of Grand Rapids Michigan. The pension funds maintain Bayer did not conduct proper due diligence in the $63 billion acquisition of Monsanto, especially around Monsanto's legal risks.
In August 2018, just two months after the Bayer-Monsanto merger was finalized, a San Francisco jury awarded a school groundskeeper, Dewayne Johnson, $250 million in punitive damages, finding that Roundup had caused his non-Hodgkin's lymphoma. Bayer and Monsanto at the time maintained the safety of glyphosate and argued that it did not cause Johnson's cancer. Johnson had originally sued Monsanto in 2016.
That case was followed by another pair of lawsuits against Monsanto, resulting in damage rulings of $78 million and $80 million over non-Hodgkin's lymphoma. That sparked other lawsuits that were eventually consolidated. Bayer in June 2020 announced it would pay a $10.9 billion settlement for claims against Roundup, but the presiding judge indicated he was unlikely to approve the settlement against future claims.
Bayer's stock price in September 2016 when the merger was originally announced was trading at $91 euros ($106). Bayer's stock since the merger closed has steadily declined to $47.38 euros ($55) on Tuesday.
The pension funds argue that from the beginning of merger talks in May 2016 up to the June settlement proposals, Bayer "made dozens of false or misleading statements." Bayer counters that the company never deceived investors about lapses in due diligence before pursuing the merger with Monsanto.
U.S. District Judge Richard Seeborg rejected Bayer's argument that the pension funds' claimers were "fraud-by-hindsight." Regarding due diligence, Seeborg cited multiple statements by Bayer CEO Werner Baumann that Bayer had done its due diligence and saw potential for higher sales and cost savings of $1.5 billion. Baumann stated on an earnings call that "the Monsanto people went out of their way to provide us with transparency, data and visibility to the most critical questions we had." The pension funds allege those statements were misleading because Bayer had not reviewed any internal Monsanto documents and had accepted Monsanto's characterization of the litigation risks at face value, Seeborg wrote.
Bayer continues to maintain in a 2018 shareholders' meeting that the acquisition of Monsanto "is as just attractive today as we assessed it to be two years ago." Bayer also told a journalist that Monsanto's internal documents "are sometime cited out of context on the plaintiff's side" in court cases. Seeborg cited that deception and misleading statements concerning due diligence may be actionable in securities fraud.
The pension funds also cite Monsanto was aware that the formulation of Roundup was possibly more dangerous than glyphosate, though Baumann had stated in a conference call that "there is no difference" between glyphosate and the Roundup formulation. Seeborg stated, "By showing that an executive's statement was in contradiction to Monsanto's own assessment of the science, plaintiffs have adequately pled a material misstatement concerning the safety risks of Roundup as compared to glyphosate."
The result is Seeborg denied Bayer's motion to dismiss the case, citing that the pension funds have adequately stated a claim under the Securities Exchange Act. Seeborg did rule against "certain theories the plaintiffs have advanced" that would have to be amended or removed as the case goes forward.
In a statement to DTN, Bayer said it disagreed with Seeborg's decision and defended the acquisition of Monsanto.
"We respectfully disagree with the court's decision, which is a preliminary ruling in the case, to allow certain allegations to move forward. We believe the complaint failed to allege conduct and related losses necessary to support this action under the law," Bayer said.
"Bayer and its leaders maintain that appropriate due diligence was conducted regarding the Monsanto acquisition process that ended with Bayer becoming sole owner of Monsanto on June 7, 2018. Reports by independent experts have confirmed that Bayer's management conducted the acquisition in an appropriate manner and in line with their duties," Bayer added.
"The court did narrow the claims in the case, including dismissing without prejudice the allegations concerning the company's statements on the safety of glyphosate," Bayer continued. "The company will continue to defend its conduct related to the transaction as the case moves ahead."
The ruling was originally reported Tuesday by courthousenews.com (https://www.courthousenews.com/…).
Chris Clayton can be reached at Chris.Clayton@dtn.com
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