Bayer AG of Germany which you know one of their products – the aspirin, bought Monsanto a giant chemical company among whose products is a weed killer called Roundup. The side affect of Roundup after many uses is Roundup may cause cancer. When something may cause cancer there will be lawsuits somewhere. In the US there are 125,000 lawsuits and in late June, Bayer announced it had come to terms with 75% of the lawsuits and $10.9 billion will be distributed to law firms and their clients.
In an article by Ludwig Burger and Tina Bellon of Reuters, Bayer’s Chief Executive Officer Werner Baumann said the settlements bring a level of certainty to the issue. The company will make a payment of $8.8 billion to $9.6 billion to resolve current Roundup litigation and put in an allowance of $1.25 billion for future litigation.
The Bayer verdict is higher than Merek & Co $5 billion deal over Vioxx and Bayer’s $2 billion over Yasmin and Yaz birth control pills.
In 2018, Bayer spent $63 billion to buy Monsanto, but does not have to write down the value on its books, reflecting average analyst estimate at the time.
Bayer said it expects to maintain its investment grade credit rating and its dividend policy.
Linking to dividend paying stocks, a company similar to Bayer has many assets, some of which are held in reserve for the settlement of lawsuits. This speaks to the profitability of the company as the reserve funds are quite large. When you invest in profitable, dividend companies one of the advantages is they have reserve funds to continue business when adversity or change happens. One method to reduce your risk is to buy these types of companies.
There are more questions than answers, till the next time – to raising questions.