Bank of America, Credit Suisse Failed Due Diligence in Bayer-Monsanto Acquisition.
And other lessons to be learned.
Readers may remember back in March of this year Newsgate NY went on a little tirade over Monsanto (here and here). The reason for this was to 1. make aware alternatives to their products and 2. Warn investors over Bayer’s coming disastrous deal. What we didn’t understand was since it was so self-evidently a bad idea – why was Bayer going through with it?
1st Lesson: European companies can be sued in US courts.
Known as a derivative lawsuits, a shareholder can step in to act on behalf of a company that has been wronged. Executives of Bank of America, Credit Suisse and Bayer board members are being sued over the Monsanto Acquisition in New York City, but using the Bayer’s country’s governing law.
The German Stock Corporation Act is the basis for asserting causes of action. The full text of the law can be found here.
“The liability regime for officers and directors of German companies combines strict and lenient elements. Officers and directors are liable for simple negligence, they bear the burden of proof for establishing diligent conduct, and they are liable for unlimited damages. These elements are worrisome for the reason that managers are confronted with the full downside risk of the enterprise even though they do not internalize the benefits of the corporate venture. This overly strict regime is balanced by other features of the regime, namely comprehensive insurance and systematic under-enforcement. Even though the authority to enforce claims against the management is divided between three different actors — the supervisory board, the shareholders assembly, and individual shareholders — enforcement has remained the exception. Furthermore, under the current system of Directors’ and Officers’ (D&O) liability insurance, board members do not feel the bite of liability as they are protected by an insurance cover that is contracted and paid for by the corporation. Thus, the current German system may combine the worst of two worlds, i.e., the threat of personal liability for excessively high amounts of damages in exceptional cases, and the practical irrelevance of the liability regime in run-of-the-mill cases.”
To summarise, you don’t want to be a manager or board member for a German company. Simple negligence is the only accusation necessary, and they bear the burden of proof (“did you do enough?”). Secondly, one cannot purchase an “insured s. insured” exclusion insurance policy – it is a breach of the duties of due care and prudence.
2nd Lesson: Never have a bank play two different roles in a transaction.
The suit claims that Bank of America and Credit Suisse – under German law – failed abjectly in acting as independent advisers in the deal. They were acting as merger advisors AND they were also providing the financing. So they conveniently overlooked the 13,000 pending lawsuits against Monsanto and their cancer causing product, “Roundup”.
Lesson 3: Never agree to a $66 billion “all cash” deal.
As Yves Smith (link) states in his version of the account,
“… nearly every penny of the $66 billion that Bayer paid for Monsanto has gone poof.”
The reason for the cash deal was to avoid getting shareholder approval for the deal, so Baer turned to financing, including expensive “bridge” loans. The suit seeks to reclaim hundreds of millions of dollars in bank fees, plus punitive damages.
Bayer is the first public company in German corporate history that received a majority vote of no confidence from its shareholders.
But we still don’t understand why Bayer wanted to buy Monsanto: Bayer management wanted to bulk up the company so as to not be acquired, and Monsanto was the only major player left. Bayer managers wanted to keep their huge pay checks and social status, and the key managers are Werner Wenning and Werner Baumann. So, they pushed the deal through, ignored reports from WHO and the EPA, who recognised Glyphosate (the main “Roundup” chemical) as a known carcinogen.
And – it gets worse. Rather than trying to settle the cancer cases out of court, Bayer went to trial. They lost a $289 million judgment; internal Monsanto documents admitted Glyphosate is “geno-toxic”; Bayer tried a global settlement of $13 billion, but that will not stop all the current cases – nor the future ones.
Because, you see, Bayer has not taken Roundup off the market, they have not reformulated it, and they have not even bothered to put a cancer warning label on the package.
In the mean time …
France, Austria, Brazil, Mexico have banned the use of Roundup, and Germany has restrictions now and a full ban coming at the end of 2023 (which will probably also signify the entire EU).
