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Bayer investors revolt against CEO but want their no-confidence vote to stay symbolic

April 30, 2019
Life sciences

Apparently, it wasn’t just a few investors unhappy with how Bayer’s management handled its Monsanto acquisition. But even as they cast a resounding no-confidence vote Friday, many of the shareholders say they want that vote to stay symbolic.

Furious about the stock’s slide and Bayer’s suffering reputation, 55.5% of shareholders voted against ratifying the management’s actions in 2018 at the company’s annual general meeting in Bonn, Germany. That approval rate is the lowest in Germany’s postwar corporate history, according to the Financial Times,

The vote was merely a symbolic one, not legally binding. Bayer’s board need not act on it—and some prominent investors want it to stay that way.

In opening remarks at the meeting, CEO Werner Baumann, his eyebrows deeply furrowed, acknowledged “we’re looking back on a difficult year,” according to an English-dubbed recording of the event. “Bayer […] saw substantial falls in our share price, and there is no getting around this,” he said.

The sharp decline in Bayer’s stock—over 30% since the Monsanto deal—stemmed from the growing number of lawsuits that claim Monsanto’s Roundup weedkiller caused cancer. The sheer number of the suits—13,400 as of April—and two recent defeats in U.S. courts that yielded $158 million in damages give investors an idea of the trouble ahead.

Despite the setbacks, Baumann again stood by the Monsanto deal as an important step forward. Management decided to make the deal after “careful analysis” and evaluation of the agribusiness giant, including the potential risks posed by Roundup lawsuits. He also pointed to Bayer’s now-leading position in agriculture and potential cost savings as justifications for the deal.

Shareholders didn’t buy it. When it came to the vote on management’s actions, among the 65.2% Bayer shares represented at the meeting, investors holding about 9% abstained; more than half of those that did vote said nay.

“The vote is a disgrace. To be gambling away the trust of so many investors within such a short time has historic proportions,” said Ingo Speich, head of sustainability and corporate governance at Deka Investment, a top 20 Bayer investor, according to Reuters.

In an interview with the Financial Times, Speich urged Bayer to provide more information on the scale of the potential Roundup damages. “If they just stick with business as usual, the pressure from shareholders will only grow,” he told the business news outlet.

Whatever message they want the vote to convey, however—be it protest, constructive criticism or warning—some investors don’t actually want to see substantial changes in management now. Not with a gigantic business overhaul underway and those Roundup lawsuits hanging over their heads.

“A hasty replacement of the CEO would only increase the risk of a break-up and therefore can’t be in the interest of long-term oriented investors such as Union Investment,” said Janne Werning, an analyst with Union Investment, a top Bayer shareholder that voted “no” on relieving management’s responsibilities at the annual meeting, Reuters reports.

“The scale of the litigation risks won’t become clearer before next year, that’s why we think it’s fair and necessary to grant top management more time,” Werning said, as cited by the news wire.

Speich agreed. “It can’t be in anyone’s interest to see the daily operations being neglected, on top of all the existing chaos,” he said, according to Reuters.

Bayer’s supervisory board, led by Chairman Werner Wenning, soon moved to show its support for Baumann’s team of executives.

“While we take the outcome of the vote at the annual stockholders’ meeting very seriously, Bayer’s supervisory board unanimously stands behind the board of management,” Wenning said in a Saturday statement. Nonetheless, he acknowledged the vote is “a clear signal” that management needs to do more to restore shareholder confidence. In a separate vote Friday on the supervisory board’s actions, only a third of the votes cast showed disapproval.

On top of the Roundup legal burden, Bayer is carrying out a groupwide revamp that also affects its drug units. The company tentatively decided to sell—rather than spin off—its animal health business, but some market watchers have called for a bigger breakup between the pharma and healthcare units as well.

By Angus Liu

Source: Fierce Pharma

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