When German multinational behemoth Bayer completed the acquisition of American agricultural seed maker Monsanto for $63 billion last year, many eyebrows were raised and perhaps rightly so. However, the huge bet from Bayer seems to have paid off and the company’s healthy profit margins in the fourth quarter results announced on Wednesday was largely down to Monsanto. The core earnings of Bayer rose by 15.4%, but it could have been much more had Monsanto’s legal troubles not brought down the earnings somewhat, and in addition to that, the cost-cutting exercise in the company’s drug business has also been regarded as a reason behind the good show.

The situation in the agricultural market has been tough for a number of companies, and competitor Syngenta has gone so far as to call it ‘challenging’. In such a scenario, it must be said that Bayer has done well despite the legal challenged being faced by Monsanto at this point in time. Before adjustments for EBIDTA (earnings before interest, tax, depreciation and amortization), earnings stood at 2.07 billion Euros, and that ended up beating the forecast of analysts. Prior to the earnings report, analysts’ average for Bayer’s earnings had stood at 2 billion Euros.

Following the publication of its earnings, the shares of Bayer shot up significantly and at one point had risen by as much as 4.3%. It was the performer at the German stock exchange on Wednesday. Markus Mayer, who is an analyst at Baader Helvea stated, “A starting recovery at Bayer’s agrochemicals and seeds (after 5 years of a downturn) could be … a significant share price trigger.”

Despite the excellent numbers in the fourth quarter and its successful integration of a giant of an industry like Monsanto, all is not particularly well at Bayer. There are plenty of issues that still need to be addressed and the most urgent among them is a lawsuit over the weed killing Monsanto product Round-Up. Those who have filed lawsuits against Monsanto are alleging that the product is cancerous and a number of lawsuits has risen steadily. The litigation risk arising out of those lawsuits is huge, and it is a danger that the company needs to tackle before fully tapping into Monsanto’s potential ahead of peak season in the agricultural sector. It is alarming that the number of plaintiffs who have come forward has risen to 11200 from 9300 and according to analyst it is the proverbial ‘Damocles that continues to hang over Bayer’.

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