Bayer AG, once a flagship of German industry, has experienced an unprecedented share price decline in recent years. This article looks at how far the share is from its peak, what factors led to this crash, whether it is justified and how improved governance, risk and compliance (GRC) management could have prevented such developments.

Distance from the peak

In 2015, Bayer shares reached their historic high of around 140 euros. Currently, in November 2024, the share is trading at around 20 euros, which represents a decline of over 85%. On November 12, 2024 alone, the share price fell by 14.5%, approaching the 20 euro mark, the lowest level in 20 years.

Causes of the crash

Acquisition of Monsanto

The acquisition of the US agrochemical company Monsanto for 63 billion US dollars, completed in 2018, is considered the main cause of Bayer’s problems. Monsanto was already involved in numerous legal disputes before the acquisition, in particular over the weed killer glyphosate, which is suspected of being carcinogenic.

Legal disputes and financial burdens

After the acquisition, Bayer was faced with a flood of lawsuits. In the third quarter of 2024, the company recorded a net loss of 4.2 billion euros, mainly due to write-downs in the agricultural division.

Weakness in the agricultural business

Bayer had to lower its profit forecasts for 2024 and now expects EBITDA between 10.4 and 10.7 billion euros, compared to previous estimates of 10.7 to 11.3 billion euros. This adjustment is due to weaker developments in the agricultural market, especially in Latin America.

The role of GRC

The dramatic challenges Bayer AG is facing following the acquisition of Monsanto underscore the critical importance of effective GRC. More careful implementation and application of GRC processes could have helped Bayer avoid or at least mitigate the current problems. The following explains the specific areas where improved GRC processes would have been beneficial:

1. Thorough due diligence prior to the acquisition

Before the acquisition of Monsanto, a comprehensive due diligence should have been conducted, taking into account not only financial aspects but also legal and regulatory risks in particular. An in-depth analysis of existing and potential litigation related to glyphosate and other Monsanto products would have enabled Bayer to better assess the scope of the risks and make informed decisions.

2. Comprehensive risk management

A robust risk management system would have helped Bayer to identify, assess and take appropriate action on potential risks at an early stage. This includes developing scenario analyses for potential litigation and its financial impact, as well as implementing risk mitigation strategies.

3. Strengthening the compliance culture

A strong compliance culture within the company could have ensured that all business activities were in line with legal requirements and ethical standards. This would not only have strengthened stakeholder trust, but also reduced the risk of litigation and reputational damage.

4. Effective corporate governance

Transparent and responsible corporate governance would have helped ensure that strategic decisions, such as the acquisition of Monsanto, were made taking into account all relevant risks and stakeholder interests. This might have led to a more critical assessment of the acquisition.

5. Continuous monitoring and adjustment

After the acquisition, continuous monitoring of the integration and the associated risks would have been essential. Through regular reviews and adjustments of strategies, Bayer would have been able to respond flexibly to challenges that arose.

Conclusion

The dramatic fall in Bayer’s share price is the result of a combination of strategic mistakes, inadequate risk management and a lack of compliance. A robust GRC system could have helped to identify these risks early on and take appropriate countermeasures. For Bayer and other companies, this is an important lesson about the importance of governance, risk and compliance management for long-term success. The implementation and consistent application of improved GRC processes would have helped Bayer to better manage the risks associated with the Monsanto takeover and avoid or at least mitigate the current challenges.