On October 19, 2021, the Honorable Richard Seeborg of the United States District Court for the Northern District of California denied in substantial part Defendants’ motion to dismiss, ruling that Lead Plaintiffs Sheet Metal Workers’ National Pension Fund and the International Brotherhood of Teamsters Local No. 710 Pension Fund (together “Lead Plaintiffs”) along with additional named plaintiff International Union of Operating Engineers Pension Fund of Eastern Pennsylvania and Delaware (collectively, “Plaintiffs”) adequately pled claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 based on false and misleading statements to investors by Bayer and current and former Bayer executives Werner Baumann, Werner Wenning, Liam Condon, Johannes Dietsch, and Wolfgang Nickl (collectively, “Defendants”) about the extent of their due diligence on Monsanto’s litigation risks relating to Roundup.
The Bayer Securities Litigation concerns Bayer’s $63 billion acquisition of Monsanto, the agricultural behemoth that infamously became known as “the most hated company in the world” after it was repeatedly caught concealing the health risks of its major products. Plaintiffs allege that in the run-up to Bayer’s acquisition of Monsanto and beyond, Defendants misled investors regarding the legal risks associated with Roundup, Monsanto’s flagship herbicide, which allegedly causes non-Hodgkin’s lymphoma, and made misrepresentations and omissions regarding, among other things, Bayer’s due diligence when acquiring Monsanto. Following the merger, Bayer sustained an unending barrage of defeats in toxic tort litigation relating to Roundup and was ultimately forced to establish a $10.9 billion settlement fund for current and future Roundup claims.
Judge Seeborg ruled that Plaintiffs’ amended complaint sufficiently alleged that Defendants misled investors about the extent of Bayer’s due diligence on Monsanto’s legal risks, finding that Defendants’ statements about their due diligence could have misled investors by suggesting Bayer “had assessed Monsanto’s litigation risks, and had reviewed non-public information to inform that review,” but in reality, Defendants’ “diligence was less than what an investor would believe their statement meant.”
Judge Seeborg also found Plaintiffs adequately pled scienter—the requisite mental state—based on the numerous allegations alleged. This included that Bayer CEO Werner Baumann had a longstanding focus on acquiring Monsanto despite its known reputational risks and also had a history of reckless due diligence practices. Further, Defendants had an opportunity to review additional information given that the Roundup litigation was already pending when the merger occurred and Monsanto had already produced internal documents in discovery. In addition, numerous analysts were critical of the merger at the time and shareholders doubted the merger so much they called for a vote on it. The amended complaint therefore “alleges more than that the Monsanto deal was bad in hindsight; instead, it alleges that the Defendants advanced in pursuit of the merger despite being aware that acquiring Monsanto brought significant risks, all while assuring investors they had fully assessed those risks themselves.”
The decision creates strong precedent for other cases where plaintiffs allege that defendants have misrepresented the extent of their due diligence on an acquisition.
As alleged in the amended complaint, on May 23, 2016, Bayer, a multi-national pharmaceutical and life sciences corporation, announced it had made an unsolicited offer to acquire Monsanto, a provider of agricultural and other chemicals. One of Monsanto’s flagship products was the weed-killer Roundup, which generated nearly $5 billion annually in revenue for Monsanto. In March 2015, the International Agency for Research on Cancer deemed the active ingredient in Roundup, glyphosate, “probably carcinogenic to humans,” and by early 2016, Monsanto faced numerous lawsuits from individuals who alleged that Roundup had caused their cancer.
In the nearly two years between the announcement and Bayer’s ultimate completion of its all-cash acquisition of Monsanto on June 7, 2018, for $63 billion, Defendants repeatedly made claims to investors about the extent of their due diligence and their analysis of Bayer’s potential exposure to risks stemming from Roundup cancer litigation (for which Bayer assumed liability when it acquired Monsanto). These and similar Class Period statements by Defendants were false and misleading because at the time, Defendants knew or recklessly disregarded that Roundup created significant exposure to liability. Defendants’ false and misleading statements and omissions caused Bayer ADRs to trade at artificially inflated prices throughout the Class Period. The truth came out as Monsanto lost every subsequent trial and appellate battle, causing Bayer’s ADR price to plummet until the true dimension of the liability was finally disclosed in 2020, when Bayer revealed it would be forced to pay a staggering $10.9 billion or more to resolve the Roundup cases. These declines in the value of Bayer ADRs caused Lead Plaintiffs and other Class members to suffer significant loss and damages.
The case was initially filed on July 15, 2020, and on October 21, 2020, the Court appointed the Sheet Metal Workers National Pension Fund and the International Brotherhood of Teamsters Local No. 710 Pension Fund as Lead Plaintiffs and Cohen Milstein Sellers & Toll PLLC as sole Lead Counsel for the proposed Class of investors. On January 19, 2021, Plaintiffs filed their amended class action complaint.
Sheet Metal Workers' National Pension Fund and International Brotherhood of Teamsters Local No. 710 Pension Fund, et al. v. Bayer Aktiengesellschaft, et al., Case No. 3:20-cv-04737-RS, United States District Court for the Northern District of California.