Bayer Mulls ‘Texas Two-Step’ Bankruptcy Filing in Response to Roundup Lawsuits

Bayer AG is considering using the Texas Two-Step bankruptcy maneuver to address the numerous US lawsuits alleging that its Roundup weedkiller causes cancer, as reported by sources familiar with the situation.

With a series of costly jury verdicts against the herbicide, Bayer executives are seeking advice on how to stop upcoming trials this year by appealing to a bankruptcy judge. The goal is to settle over 50,000 cases, according to the sources who preferred to remain anonymous.

This legal tactic, named the Texas Two-Step, involves utilizing a Texas state law that allows companies to separate their assets and liabilities into distinct units, placing the unit with liabilities into bankruptcy to facilitate a global settlement. Similar efforts by companies like 3M Co. and Johnson & Johnson have been rejected by courts in other litigation.

After facing substantial Roundup jury verdicts totaling around $4 billion in recent months, Bayer is seeking relief. Despite some courtroom victories, a significant defeat in Pennsylvania resulted in a $2.25 billion award to a man blaming his cancer on Roundup. Bayer maintains the product’s safety.

Experts like Bruce Markell, a former federal bankruptcy judge, believe Bayer’s pursuit of a Texas Two-Step bankruptcy is a long shot for a settlement, but the company might feel it has no better alternatives.

Stock Decline and Legal Challenges

Bayer has refrained from commenting on any bankruptcy plans related to Roundup litigation. New CEO Bill Anderson expressed willingness to explore all options to shield Bayer from the impact of litigation on its operations.

Bayer’s stock value has plummeted by about 70% since acquiring Monsanto in 2018, inheriting Roundup in the process. Ongoing litigation has contributed to decreasing profits, prompting the company to consider all avenues to address the legal burden.

While the success likelihood of the Texas Two-Step strategy is slim, Bayer’s efforts signify a comprehensive approach to addressing the flood of Roundup damage claims, according to Markus Manns, a portfolio manager at Union Investment.

Bayer is implementing restructuring steps that could pave the way for a potential bankruptcy filing by one of its units. The addition of experienced investors and legal experts to the board highlights Bayer’s strategic preparations for potential legal maneuvers.

Challenges and Implications

Bayer faces a large number of lawsuits across state courts, complicating efforts to consolidate litigation. Previous attempts to settle or defend Roundup suits have yielded mixed results, with recent courtroom losses impacting the company’s position in negotiations.

A potential bankruptcy filing could centralize Roundup cases before a bankruptcy judge for settlement negotiations. Despite allocating significant funds for settlements, Bayer aims to address existing and future claims through structured resolutions.

The use of the Texas Two-Step for Roundup litigation has sparked criticism, as some view it as a maneuver to coerce claimants into settlements. Legal experts and professors express skepticism about the long-term viability of such strategies in the face of evolving court interpretations.

Final Considerations

Bayer’s exploration of bankruptcy options signifies a strategic move to address mounting legal challenges, though the success of such tactics remains uncertain. The company’s future actions will heavily influence the outcome of the Roundup litigation saga.

(Updates with comment from Bayer investor.)

To contact the reporters on this story:
Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net;
Tim Loh-bsp-person> in Munich at tloh16@bloomberg.net;
Crystal Tse-bsp-person> in New York at ctse44@bloomberg.net

To contact the editors responsible for this story:
Misyrlena Egkolfopoulou-bsp-person> at megkolfopoul@bloomberg.net

Peter Jeffrey, Steve Stroth

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