Bayer Weighs ‘Texas Two-Step’ Bankruptcy Filing Over Roundup

By Jef Feeley, Tim Loh and Crystal Tse | March 15, 2024

Bayer AG is weighing whether to use a controversial legal maneuver known as the Texas Two-Step bankruptcy to try to resolve tens of thousands of US lawsuits claiming its Roundup weedkiller causes cancer, according to people familiar with its thinking.

Faced with a recent string of costly jury verdicts over the herbicide, Bayer executives are consulting with law firms and advisers about how to prompt a bankruptcy judge to halt further trials scheduled for this year. The object is to wrangle a settlement of more than 50,000 cases, said the people, who asked not to be identified discussing a confidential matter.

The bankruptcy maneuver gets its name from the use of a Texas state law that lets companies split their assets and liabilities into separate units, then place the unit loaded with liabilities into bankruptcy to drive a global settlement. Courts have rejected the tactic by 3M Co. over suits targeting faulty hearing protection devices for US soldiers and by Johnson & Johnson in litigation tied to its talc-based baby powder.

Bayer shares were little changed in trading in Frankfurt on Thursday. The stock has lost about 70% of its value since Bayer’s 2018 acquisition of Monsanto, from which it inherited Roundup, for $63 billion.

Bayer is looking for breathing room after it was hammered over the last four months with Roundup jury verdicts totaling about $4 billion. While the company has won more recent trials than it has lost, its latest courtroom defeat was its biggest yet, with a Pennsylvania jury awarding $2.25 billion to a man who blamed his cancer on long-term exposure to Roundup. Bayer maintains the product is safe.

“Given the recent rulings on Texas Two-Step bankruptcies, I’m pretty sure Bayer knows this is a long-shot bid for a settlement,” said Bruce Markell, a former federal bankruptcy judge who now teaches law at Northwestern University. “But they may feel like they don’t have any other choice.”

Stock Slide, Legal Overhang

Bayer declined to comment on any plans for a bankruptcy filing over the Roundup litigation. But Chief Executive Officer Bill Anderson has said he is prepared to “explore every reasonable option to protect the company and protect our mission from the litigation industry.”

Bayer said in a statement that while it has faced large jury verdicts over Roundup, it’s succeeded in getting much of that reduced by more than 90% in post-trial proceedings. All told, it’s won 13 of the last 19 cases where judgments were entered.

Bayer officials acknowledged earlier this month that profits are falling partly because of the ongoing litigation.

While the chances of success with the Texas Two Step are slim, Bayer should leave no stone unturned as it seeks to stop the flood of claims for damages on Roundup, Markus Manns, a portfolio manager at Frankfurt-based Union Investment, a top Bayer shareholder, said in an email.

The German conglomerate is taking steps that may be in preparation for a unit’s bankruptcy filing. Last month it proposed to add veteran activist investor Jeff Ubben to its supervisory board. Ubben publicly called for Bayer to consider a Texas-Two Step filing to deal with the Roundup litigation more than a year ago.

Bayer is also proposing to bring on former McKesson Corp. General Counsel Lori Schecter as a director. Before joining McKesson — a drug distributor that paid $6 billion to settle litigation over its alleged mishandling of opioid painkillers — in 2012, she was a partner at the Morrison & Foerster law firm, where she handled complex litigation and corporate investigations.

Rejected Efforts

Part of Bayer’s problem is that the company is facing tens of thousands of lawsuits in state courts across the country. When it tried to consolidate the litigation through a class settlement program in 2021, a federal judge rejected its efforts.

Since then Bayer has sought to settle Roundup suits when it makes sense for the company and to go to trial when necessary. For a while, that strategy appeared to work — Bayer won nine cases in a row. But in the fall it lost several trials, with big jury verdicts. Those losses have damaged its leverage in negotiating settlements and spurred plaintiff lawyers to bring new claims against the company.

The idea of a filing would be to collect the scattered Roundup cases before a bankruptcy judge in hopes of negotiating a settlement. The company has spent about $10 billion of the $16 billion it set aside to resolve more than 110,000 Roundup cases so far. The remainder is intended for resolutions of newly filed cases, existing suits that bowed out of previous settlement efforts and future claims.

The Texas Two-Step has drawn criticism from some legal experts for allowing solvent companies to use bankruptcy court to force settlements on claimants.

Over the last 13 months, a federal appeals court and a US bankruptcy judge in New Jersey have shot down J&J’s attempts to use a unit’s Two-Step bankruptcy case to persuade former baby powder users to sign on to a nearly $9 billion settlement of their claims. The courts have concluded J&J isn’t in enough financial distress from the cases to avail itself of bankruptcy protection.

Still, J&J officials vow to take a third shot at using bankruptcy to generate settlements in the more than decade-long baby powder litigation.

The Two-Step

One way for Bayer to foster a settlement would be to move a unit to Texas so it can take advantage of the state’s laws. While Bayer is a foreign company, Monsanto was based in Missouri and the company retains major operations there. It’s unclear whether Bayer would use Monsanto or another entity name for any Texas Two-Step, the people familiar with the discussions said.

While the legitimacy of a Two-Step aimed at the Roundup litigation was hashed out in court, a bankruptcy judge would likely halt all litigation against the company, said Melissa Jacoby, a University of North Carolina law professor and bankruptcy expert.

“Given the track record of recent Texas Two-Step bankruptcies, the pursuit of this strategy looks like a strong sign that the company is more interested in delay than honoring the legal rights of cancer patients or a comprehensive settlement at a fair price,” she said.

Ralph Brubaker, a University of Illinois professor who teaches bankruptcy law, said bankruptcy could give Bayer time to come up with a settlement proposal.

“Even if Texas Two-Steps are ultimately repudiated” by the courts, “the strategy allows defendants to shut down all tort litigation indefinitely,” Brubaker said.

Top photo: A sign at the Bayer AG pharmaceutical campus in Berlin, Germany, on Monday, Feb. 27, 2023. Bayer AG sees lower profit this year as it contends with falling prices for agriculture products in its crop science division, although the pharma division will probably see another year of about 1% sales growth and the consumer health unit could see sales rise by about 5%, it said. Photographer: Krisztian Bocsi/Bloomberg.

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