The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Aimee Donnellan

DUBLIN, Feb 18 (Reuters Breakingviews) - Bayer’s BAYGn.DE cure for its litigation disaster could leave lingering ailments. On Tuesday evening, the $51 billion seeds-to-drugs group unveiled a $7.3 billion pot to fund claims from people who say they developed cancer from the company’s Roundup weedkiller. Putting a definite lid on future payouts would be a clear positive, but that’s not obviously what will happen.

CEO Bill Anderson presides over a group that’s on a tear. Bayer’s shares have soared by nearly 50% since December, when U.S. Solicitor General D. John Sauer urged the Supreme Court to back the company’s bid to curtail thousands of Roundup lawsuits – the baleful legacy of its disastrous 2018 Monsanto deal. Even so, were the latest plan to handle claims definitely the last, the company might still look undervalued.

At 7.2 times its expected EBITDA for 2026, like rival Sanofi SASY.PA, the German group's pharmaceutical unit would be worth $35 billion. On 13.5 times the same metric, like Reckitt Benckiser RKT.L, Bayer’s consumer arm would fetch $22 billion. Lop this $57 billion off the group’s current $90 billion enterprise value and its crop science division, which makes Roundup, would only be worth $33 billion, or less than 7 times EBITDA. If a strife-free crop science business could instead be valued like U.S. rival Corteva CTVA.N on 12 times, it would be worth $57 billion – and Bayer’s equity overall would be worth $76 billion – an upside of nearly 50%.

Still, Anderson needs to work out how to finance the newly announced $7.3 billion bill for the claims without weakening the company further. Doing so via new bonds would hike Bayer’s debt above 4 times EBITDA, which could damage its credit rating. An enlarged $46 billion debt pile, plus $6 billion of costs that analysts estimate might be needed to break up Bayer and realise the valuation goodies, would reduce the equity upside to around 20%.

That’s not all. Investors have good reason to be sceptical the latest news is actually the final word. In 2020, a similar $10 billion settlement unravelled when a judge questioned how Bayer would handle future cases brought by people who claim the weedkiller causes non-Hodgkin lymphoma and other cancers. This latest effort requires a judge to sign it off, and a minimum number of claimants to take part. Anderson may reckon the requirement for claimants to opt out rather than opt into the scheme will bolster the numbers. But fears of the saga dragging on help explain why Bayer’s shares dipped 10% on Wednesday after a spike the day before – and why a breakup may remain stuck in the weeds.

Follow Aimee Donnellan on LinkedIn.

CONTEXT NEWS

Bayer said on February 17 its Monsanto unit had reached an agreement worth as much as $7.25 billion to resolve tens of thousands of current and future lawsuits claiming that its Roundup weedkiller caused cancer.

The German company said the proposed nationwide settlement, filed on February 17 in state court in St. Louis, Missouri, would establish a long-term claims programme funded by capped annual payments over up to 21 years.

The company is facing claims over Roundup from approximately 65,000 plaintiffs in U.S. state and federal courts.

The plaintiffs say they developed non-Hodgkin lymphoma and other forms of cancer after using the weedkiller, either at home or on the job.

Bayer said it expects its provisions and litigation liabilities to rise from 7.8 billion euros to 11.8 billion euros. It anticipates around 5 billion euros in litigation-related payouts in 2026, and now expects negative free cash flow for the year.

Shares in Bayer initially rose 7.7% on the news on February 17 but had fallen 7.9% by 0904 GMT on February 18.

(Editing by George Hay; Production by Streisand Neto)

((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))