What's going on?
Shares of German chemical company Bayer – the new owner of US agricultural firm Monsanto – dropped by 11% on Monday, following a court ruling that could spark millions of dollars’ worth of lawsuits.
What does this mean?
On Friday, a jury in the San Francisco Superior Court ruled that two of Monsanto’s herbicides presented a danger to consumers – and that the company knew, or should’ve known, the potential risks.
Monsanto will have to pay $289 million in one case where a former groundskeeper blames the products for causing his terminal illness – and it’ll open the floodgates for as many as 5,000 similar claims
(tweet this). Monsanto believes there’s evidence that its products aren’t to blame and plans to appeal the ruling.
Why should I care?
For markets: A cloud of uncertainty hangs over Bayer.
The fall in Bayer’s share price wiped off about $11 billion from the company’s value. This probably reflects uncertainty in the company’s future since it may be liable for settlements or payouts of as-yet-unknown amounts (for comparison, Glencore’s stock fell 8% last month following news that it was being investigated for wrongdoing). After roughly two years of back and forth with regulators, Bayer was finally able to put down roots with Monsanto. Investors may worry that the company’s focus on delivering synergies will be diluted by courtroom battles.
The bigger picture: It’s tough to recover from safety scandals.
Chipotle Mexican Grill has been plagued by both reputational damage and lawsuits (from customers as well as its own shareholders) over the last three years, as outbreaks of dodgy tummies from its restaurants brought food safety and hygiene concerns to the fore. The company refreshed its menu, beefed up its marketing budget and gave away a lot of free burritos in order to win back customers. Bayer and Monsanto may find they’ll have to embark on a long and arduous path to redemption in the eyes of their customers, and it’s unlikely to be cheap.