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Bayer (DE: $BAYN)(OTC: $BAYRY) Cuts Dividend by 95% Amid Mounting Roundup Losses

Bayer Aktiengesellschaft (OTC: $BAYRY)

Bayer AG (DE: $BAYN)(OTC: $BAYRY) is one of the biggest pharmaceutical and biomedical companies in the world. Based in Leverkusen, Germany, it specializes in consumer health products, agrochemicals, biotech products, pharmaceuticals, and seeds. Recently, the company suffered a major blow in the latest Roundup lawsuit.

History of Roundup Lawsuits

Roundup is a weed killer that is used commercially and for home lawn care. While effective, studies have found that some of the components are cancer-causing.

The product was developed by Monsanto, now defunct, and was the most profitable weed killer ever developed. Its active ingredient, glyphosate, is toxic to most plants and grasses. Due to its toxicity, Monsanto developed GMOs that were resistant to the compound.

In 2018, Bayer purchased Monsanto, along with the rights to Roundup. By then, thousands of lawsuits claiming cancer from Roundup use had been filed. The most common type of cancer linked to the weed killer is non-Hodgkin’s lymphoma. In 2023, Bayer committed to replacing glyphosate with new active ingredients for U.S. home lawn and garden care.

As of May 2022, Monsanto had settled over 100,000 lawsuits linked to Roundup, with payments totaling around $11 billion. There are still over 30,000 pending lawsuits.

Bayer Suffers Major Blow in Latest Roundup Lawsuit

On January 26, 2024, a Philadelphia jury awarded $2.25 billion to a plaintiff. John McKivison, the plaintiff, contracted non-Hodgkin’s lymphoma after using Roundup for over 20 years. The verdict included over $2 billion in punitive damages.

A few months before that, a jury in San Diego awarded a plaintiff $332 million. Mike Dennis, the plaintiff, contracted non-Hodgkin’s lymphoma after decades of using Roundup. The jury awarded Dennis $7 million in compensation and $325 million in punitive damages.

In a statement, Bayer said it plans to appeal the rulings. The companies added that decades of studies had shown Roundup and glyphosate were safe.

In the past, Bayer has said it plans to continue fighting the lawsuits. At some point, it had even considered spinning off its crop science segment to minimize Roundup liability.

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Bayer Plans to Cut Dividend By Over 90%

On Monday, February 19, 2024, Bayer revealed its plans to cut dividend payouts by over 90%. According to the announcement, the company will reduce payouts to the legally required minimum amount for the next three years. For fiscal 2023, the company will issue a dividend of 0.11 euros per share, or $0.12.

The reduction is part of the company’s revamped capital allocation strategy as it works on cutting debt. This proposal will be presented to shareholders for a vote on April 16, 2024, at the Annual Stockholders’ Meeting.

Bayer CEO Announces Looming Layoffs

According to a February 13, 2024, Fortune interview, the Bayer CEO, Bill Anderson, believes every large company faces organizational issues. He also revealed that as Bayer reorganizes, there will be some job losses. However, it was necessary to solve the financial challenges facing the company.

The company’s current financial constraints come from the Monsanto purchase in 2018 and the barrage of lawsuits that have followed. Its market cap is near a two-decade low. Anderson added that while the Monsanto purchase was financially flawed, it was “strategically brilliant.”

Bayer (BAYRY) Stock Performance

Year-to-date, the stock is down 17.05% on the U.S. OTC market. The stock suffered a massive loss in the week starting Monday, January 29, 2024, after it suffered a huge $2.25 billion loss in a Roundup lawsuit the previous week. The stock went from a close of $8.79 per share on Friday, January 26, to a closing price of $7.79 on Friday, February 2.

Since then, the stock’s U.S. ticker has stabilized at around $7.70 per share. It closed trading on Monday, February 19, 2024, at $7.74 per share, up 1.57%.

Bayer Stock

Bayer Stock Forecast

Analysts give Bayer (BAYRY) stock a consensus hold rating. Their average price target for the stock is $11.13. The most bullish predicts a low of $6.75, while the most bearish predicts a high of $16.41.

Bayer’s next full-year results are due on March 5, 2024. Analysts are expecting a net loss of $3.90 billion for fiscal 2023, a huge drop from the $4.49 billion net profit in fiscal 2022. They project sales will drop 6.5% to $51.3 billion.

Should You Buy Bayer (BAYRY) Stock?

Bayer is in the midst of a reorganization. While the Roundup liability has weighed heavily on projected profits, the company is diverse enough to absorb losses in the long term. However, the current hold rating is a reflection of the stock’s medium-term performance. The planned dividend cut to the legal minimum is also likely to disincentive investors from holding the stock.

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