Bayer - Update 08/20/2026 - ISIN DE000BAY0017

00:00:07: Recently, Bayer's stock jumped just under twenty percent in a single day.

00:00:14: The U.S.

00:00:14: Supreme Court had ruled seven to two...in Bayer favor.

00:00:19: So the nightmare is over after eight years of glyphosate?

00:00:22: That s story.

00:00:22: that was everywhere and our report says SCORE ONE THE BOTTOM

00:00:27: RUNG.

00:00:27: It s based on the Twenty-Twenty Five Annual Report

00:00:30: And the ruling came only afterward.

00:00:33: which brings us.

00:00:35: Does that make my score of one obsolete?

00:00:38: Well, Warren does it.

00:00:40: No Corey and the reason is the most important sentence I can tell you today.

00:00:44: The ruling takes away a risk.

00:00:46: It doesn't create a return.

00:00:48: Okay You'll have to explain that To me.

00:00:50: That's exactly what we're doing Today.

00:00:52: Welcome to an episode about A German industrial icon And About the difference between good news & sound business substance.

00:00:59: For anyone hearing us for the first time, I'm talking with Warren Wise an AI technology that analyzes like a value investor.

00:01:07: Exactly!

00:01:24: Also

00:01:28: AI, the voice of the retail investor.

00:01:31: For many people buyer is almost family history in the portfolio.

00:01:35: Aspirin, crop protection a stock you once wanted to hold forever

00:01:40: and one whose share price has lost over seventy percent since the Monsanto acquisition In twenty eighteen

00:01:46: which Is exactly why I want To understand.

00:01:48: how does A name like that end up?

00:01:50: A score Of One.

00:01:51: And Does This ruling Really Change?

00:01:53: Nothing About That.

00:01:54: for Us One Means The Knockout Zone from a value investor's perspective, currently not investable.

00:02:02: That sounds harsh, Warren!

00:02:03: It is harsh but it's a verdict specific to my perspective... ...it doesn't mean this company is going under and it doesn't means the stock would be mistake for everyone.

00:02:12: Then what does that mean?

00:02:14: By my standards I wouldn't tie up capital here in its current state.

00:02:18: And now comes the surprising part.

00:02:20: We assess eight categories.

00:02:21: None of them sits on lowest rung A one and Bayer passes Graham's survival test cleanly, not a single knockout criterion triggered.

00:02:30: So know where the worst rating – every test passed… And yet...the lowest score overall?

00:02:36: That is exactly what I'll do the math on for you at the end!

00:02:39: But first the court ruling in what it actually changes.

00:02:42: Then explain to me what was actually decided.

00:02:45: It was about illegal construction Not about question of whether glyphosate causes cancer.

00:02:52: The vast majority of the lawsuits claimed Bayer should have warned about the cancer risk and didn't under the law of individual states.

00:03:00: And what did the court say?

00:03:02: That federal law takes precedence, the U.S.

00:03:04: Environmental Agency approved the product and required no warning label.

00:03:08: so individual States can't demand one.

00:03:11: seven justices in favor two against...

00:03:14: ...and with that the basis for thousands of lawsuits falls away.

00:03:17: Bayer itself says Existing suits of this kind should be dismissed, future ones prevented.

00:03:23: And that's no small thing—that is a real turning

00:03:26: point.".

00:03:27: But...

00:03:27: "...but by that point…a multi-billion settlement was already on the table.

00:03:32: Four months before the ruling in February, Bayer reached a class settlement up to seven point two five billion

00:03:38: dollars.".

00:03:39: Over what period?

00:03:40: Upto twenty one years.

00:03:42: Twenty ONE YEARS!

00:03:43: So Bayer keeps paying into the twenty fourties for

00:03:46: illnesses tracing back to exposure before February, twenty-twenty six.

00:03:50: But also for cases only diagnosed later and the provisions were raised to eleven point.

00:03:55: eight billion euros in twenty twenty six alone.

00:03:59: around five billion flows

00:04:01: out despite the ruling?

00:04:02: Despite the ruling.

00:04:04: that's why buyer signed a credit line of eight billion dollars to finance it without a capital increase at least.

00:04:10: so The ruling protects against what might still come.

00:04:13: But it doesn't simply void the settlement costs, already agreed.

00:04:17: That's a very precise summary!

00:04:19: It caps the tale...it doesn't clear the bill.

00:04:22: And then came Ruvion

00:04:23: Exactly and its interesting because Bayer reorganized his US glyphosate business right after the ruling.

00:04:30: One week after that ruling Bayer bundles entire U.S.

00:04:33: Glyphosates into their own company based in St Louis.

00:04:37: Ruvon LLC stays part of this group.

00:04:41: Why is that relevant now?

00:04:43: Bayer justifies it with agility.

00:04:45: The market is shaped by generic products, so it needs its own pricing and distribution decisions.

00:04:51: That's plausible.

00:04:52: And the other reading?

00:04:53: that you're putting a liability heavy business into its own box.

00:04:57: I'm not insinuating anything.

00:04:58: Ruvion expressly stays part of the group... ...and the provisions remain with the group.

00:05:04: But the question will be asked And in the board's place, I'd answer it proactively.

00:05:08: Is this just an operational restructuring?

00:05:11: Or could become something more down-the

00:05:13: line?".

00:05:14: So... The ruling caps future risk but doesn't clear costs.

00:05:18: and now business is being re-structured.

00:05:20: on top of that.

00:05:21: What does mean for score?

00:05:23: I can only tell you once know how came about.

00:05:26: first because….

00:05:28: This whole point of episode.

00:05:30: lawsuits are one of four reasons.

00:05:33: Then start at beginning Because in my head, Bayer is still the aspirin company.

00:05:37: And that picture hasn't been true for years!

00:05:39: Think of Bayer as three big machines under one roof.

00:05:43: Farmer Prescription Medicines – seventeen point eight billion euros in revenue.

00:05:48: Consumer Health Aspirin and The Like – five point eight million.

00:05:52: Crop Science Seeds.

00:05:54: Crop Protection.

00:05:55: Digital Farming – twenty-one point six billion.

00:05:59: So the agriculture division is the biggest?

00:06:01: Forty seven point four percent almost half, and the idea behind it is called diversification.

00:06:08: when one machine sputters.

00:06:09: The others carry it

00:06:11: classic textbook.

00:06:12: And now the image that carries the whole case.

00:06:15: picture a rowing boat with three rowers to our top athletes perfectly in sync.

00:06:20: In the third?

00:06:21: Is the strongest?

00:06:22: he rose with full force backwards and on the side He's dropped an anchor.

00:06:27: A single rower is pulling the boat back.

00:06:29: better remember the boat or even better Remember the anchor.

00:06:33: It'll turn out to be the real issue.

00:06:35: But

00:06:35: who are the two top athletes rowing in sync, In this picture?

00:06:39: Farmer is running really well.

00:06:41: Seventeen point eight billion in revenue.

00:06:44: Three-point one billion.

00:06:45: operating profit Seventeen-point five percent margin.

00:06:49: Earnings up twelve point one percent.

00:06:51: Return on capital twelve percent.

00:06:53: And what does the capital cost?

00:06:55: Seven percent.

00:06:57: So clearly above it.

00:06:58: That's real quality.

00:07:00: Driven by new medicines, New Becker brings in two point four billion, corendia eight hundred twenty nine million

00:07:07: and consumer health

00:07:08: five point eight billion in revenue.

00:07:10: fifteen points seven percent margin calm predictable reliable.

00:07:14: so together over twenty three billion in Revenue at seventeen percent margin.

00:07:19: In any other setting that would be the basis for a solid blue chip?

00:07:26: Governance and risk transparency are two of the few crystal clear strengths in The Warren-Wise report.

00:07:32: A four each.

00:07:33: What do you base that on?

00:07:34: One hundred percent free float, no shareholder above three percent one class of shares... ...the supervisory board on the capital side.

00:07:42: ninety percent independent And the litigation risks are laid out fully in the report including the uncomfortable numbers.

00:07:50: That's worth more than it sounds.

00:07:52: You can only criticize this precisely because they let you look in this precisely.

00:07:56: Exactly, and the dividend fits the picture— eleven cents —the legal minimum for a third year in a row.

00:08:03: Wait!

00:08:04: Your citing cut-dividend as strength?

00:08:06: As an honest signal we need every euro for balance sheet And were not dressing up to pay out on credit.

00:08:12: I genuinely respect that.

00:08:14: So no one here is acting wrongly.

00:08:16: That's exactly why case so interesting.

00:08:19: We're talking about company which behaves badly.

00:08:22: We're talking about one that behaves exemplarily and still destroys value.

00:08:27: Destroying value is a harsh verdict, what do you base it on?

00:08:30: On single number

00:08:32: Which is...

00:08:33: A company receives money from banks or shareholders.

00:08:35: That's not free.

00:08:37: At buyer It costs seven percent per year And buyer states the number itself.

00:08:42: So rent for capital.

00:08:43: Nice way to put it.

00:08:45: The technical term is cost of capital.

00:08:47: Now other side.

00:08:48: What does this throw off?

00:08:50: Take your guess Corey A

00:08:52: gap of eight point four

00:09:01: percentage points.

00:09:02: In technical language, the return side is called Return on Capital Employed.

00:09:07: translated every euro that goes into business brings back less than it cost.

00:09:13: In twenty-twenty three, the figure was still plus zero point seven.

00:09:17: Then minus zero point one.

00:09:20: now minus one point four.

00:09:22: so Three years downhill

00:09:23: third year in a row below the cost of capital.

00:09:26: and here's The Point where I come back to the ruling.

00:09:29: this figure gets not One single percentage point better because Of the court decision

00:09:34: Because A risk That's Been Removed Doesn't Generate Revenue

00:09:37: And No Profit.

00:09:38: that'S Exactly What i mean by it Takes away A Risk It doesn'T Create A Return.

00:09:42: Then back to the third rower,

00:09:44: Crop Science.

00:09:45: And technologically this division is a heavyweight.

00:09:48: with FieldView buyer runs one of the largest data platforms in world.

00:09:52: agriculture.

00:09:53: over two hundred seventy five million acres plus seed patents and intangible assets of twenty point six billion on the balance sheet.

00:10:01: so exactly what value investors rave about?

00:10:04: The lead that no-one copies overnight!

00:10:12: Reported margin minus eleven point seven percent.

00:10:16: Minus?

00:10:17: And now the point that almost every report on buyer gets wrong inside, that minus eleven points seven per cent sit five point five billion euros of roundup one-off effects.

00:10:27: and without those

00:10:28: strip them out and crop science earns around three billion.

00:10:32: about thirteen point eight percent margin.

00:10:34: wait Warren.

00:10:35: so The Division isn't a loss maker at all.

00:10:38: it's profitable underneath And that matters to me because it's told differently everywhere.

00:10:43: The charge isn't, this division loses

00:10:46: money.".

00:10:46: Then what is it?

00:10:48: It earns thirteen point eight percent where Pharma earns seventeen point five... ...it almost half the group and weakest of three machines….

00:10:57: …and now the ruling comes into play!

00:10:59: "...And in a way that surprised myself—because when litigation costs run out...".

00:11:04: "...the excuse disappears with

00:11:05: them!".

00:11:06: Oh until you could say Crop science only looks bad because of the lawsuits.

00:11:10: And then that sentence falls away, what's left is a division with thirteen point eight percent margin carrying twenty-eight billion euros of goodwill.

00:11:19: The question doesn't get easier.

00:11:21: for the first time in years it becomes askable at all.

00:11:25: So the Good News takes away.

00:11:26: crop sciences excuse.

00:11:28: now the weak return stands there fully exposed

00:11:32: Exactly That.

00:11:33: A quick word on our own behalf since It fits right here.

00:11:36: Exactly this kind of uncompromising deep analysis sits behind every Warren-wise report.

00:11:43: If you sit on a management or supervisory board, Or are responsible for investor relations and want an even more detailed deep dive for your own company, warren-wise.com.

00:11:55: So back to Bayer.

00:11:56: then explain the twenty twenty five result to me.

00:11:59: buyer reports in operating loss around one point one billion euros before one off effects.

00:12:05: It's plus around five point one billion

00:12:08: over six billion difference for the same year, The Same Company.

00:12:12: Around six point two billion to be exact almost entirely from around seven point five billion euros of litigation charges.

00:12:19: and how do you assess that

00:12:21: through a metric?

00:12:21: That measures How large the adjustments are relative To reported earnings.

00:12:25: For equality company it's below one point three guess

00:12:29: Two two-and-a-half Five

00:12:31: point seven

00:12:32: five point seven.

00:12:33: The adjustments are almost six times as big as what's actually reported.

00:12:40: And was that real money

00:12:43: in twenty-twenty five?

00:12:54: So the money is still there, it just already promised!

00:13:01: On paper, the year looks better than it is.

00:13:06: And when does the bill come?

00:13:07: Now, twenty-twenty six around five billion and a free cash flow of minus one point five to minus two point five billion.

00:13:15: that's buyer zone forecast... ...and its stands despite the ruling

00:13:18: In The Lesson?

00:13:20: Not That Buyer Is Fudging!

00:13:21: The report explicitly praises the disclosure.

00:13:24: Rather, when the adjustments are almost six times as large as reported earnings.

00:13:29: The nice adjusted figure is no longer a reliable proxy for real earning power.

00:13:34: It's not wrong.

00:13:35: it just no longer says anything.

00:13:37: I couldn't have put it better.

00:13:38: And how deep does Monsanto sit in the balance sheet?

00:13:41: Deeper than many realize.

00:13:43: Imagine you buy A big house at a proud price.

00:13:45: Everything You pay above the tangible value lands As goodwill.

00:13:49: on the Balance Sheet The technical term is goodwill, translated the paid-for hope of future earnings.

00:13:56: And how much is that?

00:13:57: Around twenty eight billion euros.

00:13:59: and now the question that counts How much equity does the group have in total?

00:14:04: Considerably more.

00:14:05: I'd assume

00:14:06: around twenty six billion.

00:14:07: Wait!

00:14:08: The Good Will Is Larger Than The Entire Equity?

00:14:10: A hundred seven point seven percent.

00:14:12: the entire equity is mathematically eaten up by this one acquisition.

00:14:19: And that doesn't change the verdict.

00:14:21: Not by a single euro, The house is standing and in the cellar lies a legacy burden... ...the court ruled.

00:14:28: new water does not keep flowing-in it didn't drain the cellars.

00:14:32: How does balance sheet look overall?

00:14:34: Strained net debt twenty nine point eight billion.

00:14:38: The equity ratio has fallen from twenty eight point nine to twenty four point nine percent

00:14:43: In leverage factor.

00:14:45: Here I have to be careful because a lot of nonsense is made with this number.

00:14:49: Measured against reported earnings, seventeen point five.

00:14:52: Seventeen and half?

00:14:53: I thought above three or four.

00:14:55: it gets critical.

00:14:57: Hence the caveat The seventeen-point-five arises Because the denominator holds earnings near zero Before one off effects... ...the factor is three point zero nine.

00:15:06: So not quite so dramatic

00:15:08: Strained but not absurd.

00:15:10: Whoever only cites the seventeen point five is grandstanding.

00:15:14: Whoever Only Cites The Three Is Playing It Down.

00:15:17: And the number that nails it?

00:15:18: The debt service coverage ratio, it measures whether ongoing earnings cover interest and repayment.

00:15:24: Buyer is at zero point five eight for the second year in a row.

00:15:28: So barely sixty percent of what comes due...

00:15:31: ...and still this absolutely belongs here.

00:15:34: liquidity is the strongest pillar around thirteen billion available immediately, against five point seven billion in short-term financial liabilities plus the new credit line of eight billion dollars.

00:15:48: So no acute distress?

00:15:50: The next year and a half to two years aren't the question—the question is what comes after!

00:15:54: And all three rating agencies stand with a negative outlook on the lowest rung of the good range simultaneously.

00:16:01: that's not coincidence That's consensus

00:16:04: In the future — the pipeline?

00:16:06: That's where it gets uncomfortable.

00:16:07: Research spending fell by seven point one percent to around five point.

00:16:11: eight billion euros and Eight hundred fewer positions in research.

00:16:16: Eight hundred, fewer researchers at a life science group that lives off the next big medicine.

00:16:21: Aren't they literally eating their own seed corn?

00:16:24: A very fitting image almost ironically apt for an agriculture Group.

00:16:28: add a second number Capital expenditure.

00:16:31: is it zero?

00:16:32: point seven of the depreciation volume

00:16:34: translate that

00:16:36: Less is being invested than substance is being used up.

00:16:39: The group living off itself while it

00:16:41: deleverages.".

00:16:42: And, Is that wrong?

00:16:43: No and That's the honest part.

00:16:45: you can't repay debt pay for lawsuits and fully fund the pipeline all at once.

00:16:50: something gives.

00:16:52: but this forced rationality of today It's tomorrows growth weakness.

00:16:56: and thats where the central risk lies.

00:16:58: buyer has seven platform assets in cell and gene therapy Parkinson's programs thematically All-the-right things.

00:17:05: Only none of them reaches meaningful revenue before twenty-twenty eight to twenty thirty.

00:17:10: And the litigation payments?

00:17:12: Are running now and class settlement runs upto twenty one years.

00:17:16: So between what costs money, there's a whole four or five years.

00:17:20: The

00:17:21: report calls it the timing mismatch... ...and court ruling doesn't change that either.

00:17:25: But isn't this just an outlier year?

00:17:27: Distorted by lawsuits!

00:17:29: Now after the ruling everything looks normal again.

00:17:32: That is decisive question.

00:17:34: And the answer is no, because I stripped out the special charges completely once.

00:17:39: So just a cleaned up number?

00:17:41: Only one buyer itself likes to show most In twenty-twenty-one.

00:17:45: The adjusted earnings margin was twenty five point four percent.

00:17:48: Guess where it stands in the latest fiscal year.

00:17:51: Twenty-four?

00:17:52: At twenty-one point two

00:17:54: Over four points down...in three years!

00:17:57: ...and in absolute terms even more starkly adjusted.

00:18:01: operating profit fell from eleven point two billion in twenty-twenty one to nine points seven.

00:18:07: In the latest fiscal year a billion and half gone, And revenue likewise.

00:18:13: From forty seven point six billion in Twenty twenty three To forty five point six most recently.

00:18:19: So even the cleaned up number points down?

00:18:24: That's not a litigation issue, that is slow sustained erosion.

00:18:28: and exactly why the ruling changes.

00:18:30: so little about my diagnosis.

00:18:33: In

00:18:34: my Warren Buffett check overall picture unfortunately doesn't hold together.

00:18:39: signals contradict each other.

00:18:41: exemplary discipline negative return full transparency.

00:18:46: earnings have to be adjusted six times over two excellent machines.

00:18:51: biggest one drags down.

00:18:53: That costs half a point.

00:18:55: And in the monger check?

00:18:56: Here I'm not looking at individual warning signs, but at the pattern At buyer.

00:19:00: four clusters are active.

00:19:02: Which ones are they?

00:19:03: first lack of acquisition discipline an oversized takeover financed with high debt.

00:19:10: second goodwill risk The Goodwill exceeds equity.

00:19:13: third financial stress leverage above-the threshold debt service coverage below one.

00:19:20: Fourth, earnings quality.

00:19:22: The adjustments are large over years.

00:19:24: And now the

00:19:25: crucial question How many of those clusters does the court ruling clear away?

00:19:29: One-the fourth overtime

00:19:31: In the other three...

00:19:35: The debt from that purchase, not even the best ruling pulls it up.

00:19:50: So all four factors reinforce each other and the ruling diffuses only one of them?

00:20:09: And now do the math

00:20:12: on financial resilience, the strongest at a fore governance and risk transparency.

00:20:23: On average that would land closer to three than

00:20:26: one.".

00:20:26: So almost of three?

00:20:28: But my score is no-average.

00:20:29: The Warren Buffett cheque takes off half point... ...the Charlie Munger cheque a whole one.

00:20:34: And because both hit load bearing links what counts in end is weakest.

00:20:39: That's why I won without a one standing anywhere.

00:20:42: It not single failure puts this company on bottom rung And that's why a single piece of good news doesn't lift it back up, either.

00:20:50: Then be fair and do the counter calculation.

00:20:53: The report names five conditions for step-up.

00:20:56: How many does the Monsanto ruling meet?

00:20:59: Good question!

00:21:00: I'll go through them one by one.

00:21:02: First reported earnings must turn positive and return on capital above five percent two years in a row.

00:21:08: Does the ruling help there?

00:21:10: Not at all.

00:21:11: not a euro operating profit is added.

00:21:13: Second

00:21:14: Free cash flow in twenty-twenty six must beat the company's own forecast.

00:21:19: Twenty, twenty seven back above two billion.

00:21:21: there it helps but only from twenty twenty seven on.

00:21:24: The five billion for this year is locked in

00:21:28: third

00:21:29: debt down debt service coverage above one.

00:21:32: Indirectly helpful because less uncertainty makes refinancing cheaper But not in the short term.

00:21:38: fourth

00:21:39: and here It helps mechanically Crop science must go from minus-eleven point seven percent margin to at least plus eight.

00:21:47: When the roundup one off effects run out, The reported margin jumps almost on its own toward the thirteen point eight per cent.

00:21:54: So condition format?

00:21:56: On the way there.

00:21:57: And fifth just the same... ...the adjustment ratio must fall below one point three when the lawsuits runout.

00:22:03: That's literally the condition.

00:22:04: the ruling addresses

00:22:06: so two of five directly Two with a delay and the most important one not at all.

00:22:11: The most important on, Not At All!

00:22:13: That's why it stays a One.

00:22:15: But – And I'll say this just as clearly–the path upward is considerably shorter today than was few weeks ago.

00:22:22: So the score could move.

00:22:23: If cash flow carries in twenty-twenty seven and crop science comes out of red A one quickly becomes two or three.

00:22:30: that' s matter of quarters not decades.

00:22:33: Now very clearly because i know how like this gets read Is This a Cell Signal?

00:22:37: No And that's not a legal platitude but a methodological limit.

00:22:42: We assess the equity story, we don't assess the share price.

00:22:45: It doesn't come up at all?

00:22:47: Not once An excellent company can be a miserable stock if you pay too much and a poorly rated one can be worth it If its cheap enough.

00:22:55: What this stock is allowed to cost Is an entirely different question... ...and one You have to answer yourself.

00:23:01: And the insolvency question?

00:23:03: Explicitly no.

00:23:04: The board states in the report that none of the risks endanger the company's survival.

00:23:09: The auditors confirm that without qualification, and thirteen billion in available liquidity speaks the same

00:23:14: language.".

00:23:15: What do I take away in practical terms?

00:23:17: Three things – first a past survival test is far from meaning quality.

00:23:23: second always measure adjusted against reported earnings.

00:23:27: when an adjustment pretifies the result six-fold caution is warranted.

00:23:32: And third, goodwill larger than the entire equity is a legacy burden until proven otherwise.

00:23:41: an

00:24:01: honestly managed, transparent group and yet one that for years has repaired more than it earns.

00:24:07: Too strong to fail too burdened to grow but the first time in years with a visible way

00:24:13: out.

00:24:13: In closing thought?

00:24:14: One goes far beyond Bayer.

00:24:16: In financial world we all rave about impregnable motes irreplaceable medicines gigantic data platforms The ultimate safe haven for capital.

00:24:26: That's what you'd think

00:24:27: Bayer as this moat Field view is real The patents are real.

00:24:32: Twenty billion in intangible assets sit on the balance sheet, and still for three years less comes out than goes in

00:24:40: Because the moat was too expensive.

00:24:42: When walls of your fortress stand upon a foundation debt and unresolved risks And when every euro earned flows straight into debt repayment Then

00:24:51: the Fortress is there.

00:24:52: It's just no use to anyone sitting inside

00:24:56: it or in the end just an extremely expensive high-tech prison for your capital.

00:25:03: The June ruling opened a gate, a crack!

00:25:06: Whether anyone walks through it we'll see A note for the record.

00:25:26: Warren Weiss

00:25:34: is a fictional, synthetic character.

00:25:37: His thinking and his voice are generated by artificial intelligence.

00:25:42: This podcast Is For Information And Educational Purposes Only.

00:25:48: It's not investment advice Not recommendation to buy

00:25:52: hold

00:25:52: or sell any security.

00:25:53: The analysis based on publicly available information may contain errors.

00:26:00: Always make your own decisions and when in doubt, consult a qualified financial advisor.