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The Fifth Person, an independent investment website which won the SGX Orb Awards last year, sent a person to attend the recent media event of Temasek Holdings which presented its fund’s performance over the last FY ended on 31 March 2019.
One of the things Temasek was asked, was with regard to its investment into German pharmaceutical giant Bayer.
It was reported that Bayer sold 3.6 per cent stake to Temasek for 3 billion euros at 96.77 euros per share in Apr last year. The money was used as part of Bayer’s plan to takeover Monsanto, a U.S. company. Together with its existing holding in Bayer at the time, Temasek owned about 4 percent in Bayer after the transaction. By June 2018, with Temasek’s help, Bayer successfully acquired Monsanto to become the biggest seed and agricultural chemical maker in the world.
But soon after the investment, news emerged that Monsanto was being sued for its weed killer product, Roundup, in California. Last Aug, a California state court ruled that Roundup caused the terminal cancer of a former school groundskeeper. The jury found Monsanto had “acted with malice or oppression” and awarded the plaintiff US$289 million in damages. The damages were later reduced to US$78 million. Thereafter, more lawsuits appeared.
In a second case, Bayer lost again at a federal court in March this year. The jury found that the plaintiff was not warned about the herbicide’s alleged cancer risks and awarded him the amount of US$80 million. Presently, there are more than 10,000 lawsuits pending.
Not surprisingly, Bayer share price dropped. It has been steadily sinking since the first adverse verdict in the Roundup lawsuit was announced last August. Yesterday (12 Jul), Bayer’s share traded at 58.83 euros. From 96.77 to 58.83 euros, Temasek has lost close to 40 per cent from its original investment of 3 billion euros.
Invest for long term
The Fifth Person reported that while Temasek’s investment in Bayer is under-performing, its management is “confident about its future prospects”.
When asked about Bayer, the Head of Americas John Vaske replied saying that their investment in Bayer was “underwritten by a long-term thesis that still remains intact today”. It plays to two of the six structural trends that Temasek has identified, namely sustainable living and longer lifespans.
In addition, Bayer has largely met the Temasek team’s initial assumptions and projections, which gives them confidence, Vaske added.
Vaske noted that the decline in Bayer’s share prices is a “function of the uncertainty surrounding the litigation case”.
As an investor focused on the long term without immediate capital needs, Temasek is able to look past the uncertainty surrounding the litigation issue and focus on the company’s long-term potential, Vaske said, replying on behalf of Temasek.
But certainly, both Bayer and Temasek didn’t expect that litigation against Bayer’s subsidiary Monsanto would run into more than 10,000 cases while Bayer’s CEO Werner Baumann lost a crucial confidence vote as other investors questioned his handling of the US$63 billion Monsanto deal and the wave of U.S. lawsuits that followed.
Still, Temasek remains “confident” about Bayer’s “future prospects”.