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By Brian Dabbs
Oct. 6 — A pending purchase topping Bayer AG’s shopping list, the $66 billion cash deal to buy seed company Monsanto Co., may ensnare the German pharmaceutical Goliath into a web of ongoing environmental liabilities, attorneys tracking the pact told Bloomberg BNA.
The deal will link Bayer AG to some litigation lightning rods including Monsanto’s previous production of polychlorinated biphenyls (PCB) and its current manufacture of glyphosate as well as its cleanup liability at Superfund sites.
That’s likely the reality despite terms aimed at creating an environmental liability firewall, along with an already complex web of liability and transaction maneuvers tied to Monsanto’s chemical production, those attorneys said.
Approval of the merger, however, is far from certain. German lawmakers are urging the European Commission to scale back the deal, which will also have to receive clearance from U.S. antitrust regulators.
Legal precedent says the purchaser in a genuine merger absorbs the assets and liabilities of the purchase, several attorneys said.
Monsanto announced the deal Sept. 14 and has since filed extensive documentation with the Securities and Exchange Commission.
Decades ago, Monsanto was the sole producer of PCBs nationwide, but the company ceased production in 1979 and has since focused on agricultural biotechnology and seeds.
Plaintiffs primarily in West Coast cities, including San Francisco and San Diego, are continuing to litigate Monsanto over PCB contamination of public waterways. And a series of personal injury suits continue related to PCB exposure. The chemical was used as insulation materials in electrical transformers and equipment.
Meanwhile, a St. Louis court ordered Monsanto in May to pay $46.5 million over PCB contamination of the food chain, siding with plaintiffs who alleged they contracted non-Hodgkins lymphoma through a PCB-contaminated food chain.
Environmental groups also allege PCB presence in schools are inflicting neurological damage on children. The Centers for Disease Control and Prevention says human exposure to high levels of the chemical can cause liver damage and respiratory problems.
“What we’ve seen in both the water cases that are working their way through the courts on the West Coast, as well as in other PCB schools cases, Monsanto is a party to the case and so are the new companies,” said Melanie Benesh, a Washington D.C.-based attorney with the Environmental Working Group, following a recent teleconference unveiling a new PCB school contamination report. “So if Monsanto becomes a new entity with Bayer, that doesn’t get them out of the court cases. Just the new entity will become a part of those cases.”
Monsanto is the defendant in the suits despite spinning off its chemical production and liability to Solutia Inc. in 1997, essentially indemnifying Monsanto.
Dylan Sanders, a partner at Sugarman, Rogers, Barshak & Cohen, PC in Boston, echoed that notion in an interview with Bloomberg BNA, saying Bayer will likely assume Monsanto’s legacy and current operational liabilities.
The pact could also put the Monsanto name on the chopping block, Sanders said. Some insiders have indicated Bayer may drop the name in order to rid itself of controversy surrounding Monsanto, a company that produced DDT and other chemicals such as Agent Orange for use in the Vietnam War.
That prospect, however, wouldn’t allow Bayer to evade liability, added Sanders.
“If this is a true merger and if Monsanto is simply merged into Bayer and disappears, Bayer would assume whatever liabilities tied to Monsanto,” he said. “Under traditional doctrines of corporate law, you would expect to see Bayer as a defendant with Solutia.”
Additional portions of the pact may surface only in future litigation, said Sanders. Bayer says the deal won’t likely be finalized until the end of 2017.
Meanwhile, members of the U.S. Senate Judiciary Committee voiced concerns about consolidation in the agrochemical business at a Sept. 20 hearing, noting that several proposed chemical sector mergers could increase costs for farmers by reducing competition.
The trend in consolidation could fundamentally reshape the global agrochemical and bioengineered seed industries, with critics saying that less competition could mean bigger costs for farmers already suffering under low commodity prices, farm groups said.
Both Bayer and Monsanto denied Bloomberg BNA requests for comment.
The new company also would be exposed in the U.S. court system to agrochemical tort claims. Approximately 150 plaintiffs have filed lawsuits against Monsanto over its Roundup product, including three dozen federal suits consolidated Oct. 3 in the U.S. District Court for the Northern District of California and state court filings in Delaware and Missouri.
The plaintiffs allege Roundup—which is made from glyphosate, a compound a World Health Organization body says is probably carcinogenic and U.S. EPA says is not—can cause non-Hodgkin's lymphoma, and that Monsanto failed to warn consumers and regulators about the alleged risks.
Despite possible liability perils, the German company ultimately capitulated to Monsanto demands for a better deal.
Monsanto rejected several offers before agreeing to the latest terms, which require Bayer to pay $128 a share in cash. That figure was 21 percent above Monsanto’s closing price the day before the announcement.
Bayer also agreed to pay Monsanto a $2 billion breakup fee if the deal is rejected.
Betty Huber, a Davis Polk attorney in New York City, said the merger will take the form of a parent-child relationship under corporate law, where the child still owns responsibility. She told Bloomberg BNA there is virtually no prospect of liability evasion at play.
“One would imagine environmental regulators across the world are aware of this high-profile deal. They will follow and connect the dots, and cleanup responsibilities would likely continue to remain with a liable party,” Huber said, adding that Bayer has an excellent remediation reputation and the company will want to keep that intact.
“At minimum, the transaction is not expected to make anything worse when it comes to cleanup,” she said.
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