By Ludwig Burger
FRANKFURT (Reuters) -Bayer will seek shareholder approval to raise equity capital worth close to 35% of its outstanding shares over the next three years to cover possible costs of U.S. litigation, it said on Friday, knocking its shares lower.
The potential capital increase, worth up to 8.4 billion euros ($9.1 billion) based on the company’s current market value, will be voted on at the annual general meeting on April 25
Should investors give approval, Bayer will only resort to a rights issue “if it is absolutely necessary,” it said in a statement on its website.
But it said it could not rule out having to increase capital at short notice in the future, for example “in view of potential future settlements with plaintiffs in the United States, or in connection with measures to substantially contain litigations in the United States”.
In a letter to shareholders posted on Bayer’s website, non-executive Chairman Norbert Winkeljohann said none of the extra capital would be used for mergers and acquisitions.
Bayer shares were down 6.3% at 1330 GMT as investors baulked at the potential cash call’s size that would mean future dividends would be divided by a larger number of shares.
“Thirty-five percent is pretty enormous,” Fabian Wenner, wealth management analyst at Swiss bank Julius Baer, said.
Analysts had told Reuters last year that Bayer may have to ask shareholders for capital to shore up its finances even after the German drugs and pesticides maker cut dividends.
CEO Bill Anderson has struggled to revive a share price that has plunged by more than 70% since Bayer’s $63 billion acquisition of Monsanto in 2018 that saddled it with costly litigation and debt.
The company’s problems include U.S. litigation alleging harm from weedkiller glyphosate, a 2023 development setback for its most promising experimental medicine, weak agriculture markets and pressure from some investors to separate or sell businesses.
It has paid about $10 billion to settle disputed claims that Roundup, based on the herbicide glyphosate, causes cancer. About 67,000 further cases are pending for which the group has set aside $5.9 billion in legal provisions.
Bayer said stockholders would be granted subscription rights in the event of a cash call.
Reuters reported earlier on Friday that Bayer told told U.S. lawmakers it could stop selling Roundup unless they can strengthen legal protection against product liability litigation, according to a financial analyst and a person close to the matter.
As it released fourth-quarter earnings on Wednesday, the company said it was working to “significantly contain” litigation by 2026.
It has repeatedly said it is working with farmers’ associations to lobby U.S. federal and state legislators. It is also preparing to again petition the Supreme Court for legal protection, following a failed attempt in 2022.
($1 = 0.9222 euros)
(Reporting by Ludwig Burger, Editing by Friederike Heine, Miranda Murray and Barbara Lewis)
