Buy on the rumor, sell on the news! The correctness of the old stock exchange quote from the USA was demonstrated on Wednesday morning at Bayer AG. Since its low at the beginning of March, the group’s stock has slowly crawled from 50 euros to over 70 euros. Investors were already anticipating the longed-for comparison in the glyphosate processes in the United States. When the long-awaited news finally came, the share gave way strongly in an already weak market environment. The large comparison, which also handles two other cases in addition to glyphosate, is rather cheap at EUR 10 billion. Many analysts recently expected double.
There is no doubt that the Leverkusen-based company is taking three steps forward – one large one for glyphosate, two smaller ones for its other preparation Dicamba and the pending procedures for the contamination of groundwater by PCB. This finally brings a bit of calm back to the group. Bayer CEO Werner Baumann and the other top managers can concentrate more on their actual tasks. Many analysts are therefore likely to raise the share price targets if they have not already done so.
However, two shots of vinegar have to be poured into the sweet wine – one small and one large. The comparison only covers three quarters of the glyphosate cases and the approval of a US court is still missing on a very important detail. However, most experts anticipate that this knot will also come loose in the next few weeks. In the end, the plaintiffs, who were initially not ready to compare, also followed suit in similar proceedings. In any case, the compensation parameters are now set and the courts should be able to orientate themselves in the pending proceedings. Bayer can use it to throw a huge load off its shoulders.
Finally look ahead
In the end, however, there remains a big minus for the shareholders who stuck to their group through the crisis. This applies to many employee shareholders, for example. Because even if their stock soon reaches the price targets that the optimists are now setting, the Monsanto purchase has not paid off for long-term investors. Before the purchase, the Bayer price peaked at over 130 euros. The group was then, many have since forgotten it, the most valuable group in Germany. A way back to this price level is still going to be long and bumpy, even if normality returns at some point after the Corona crisis.
As much as one can understand the relief that Bayer CEO Baumann celebrated in several appearances immediately after the ad hoc announcement, so far there has been no cause for any kind of cries of triumph. The most important news is: The company survives the Monsanto adventure and can now look to the future. In between, it looked dangerous and the worst seemed possible.
Once the EUR 10 billion has been debited and it stays that way, the Group can make a second attempt to reduce the high debts from the Monsanto purchase by increasing earnings. Only then could one really speak of a new normal for the group. And then we may forget the EUR 70 billion (EUR 60 billion purchase price and EUR 10 billion comparative costs) that have so far been spent on the acquisition.
Bernd Ziesemer is a capital columnist. The business journalist was editor-in-chief of the Handelsblatt from 2002 to 2010. Until 2014 he was managing director of the corporate publishing division of Hoffmann and Campe. Ziesemer’s column appears regularly on Personal-Financial.com. Here you can follow him on Twitter.