Why is Bayer Stock Crashing? Monsanto Acquisition to Blame

On Wednesday, Bayer admitted that they'll see lower profits next year, largely due to agricultural shortcomings. As a result, the Bayer stock fell 13 percent on the OTC in a day, taking the company down to their lowest point in six months (and leaving them with a market value that's $7.7 billion lower than before).

Why is Bayer flagging limited profits for the coming fiscal year? Bayer works on drugs, pesticides and agricultural science, but according to a statement on Wednesday, it's their agricultural division that's the problem. 

Almost all sectors have been negatively impacted by the coronavirus pandemic, but Bayer says the agricultural industry has taken a bigger hit than they presumed. With their already struggling Monsanto acquisition (the Bayer Crop Science Division), minimized demand for biofuel has made their progress weak. At the same time, there's more soy competition than ever before.

 For 2021, Bayer says they expect to see sales close to those in 2020 (with core earnings down due to diminished currency rates). 

In their statement, Bayer admitted to trimming agricultural assets by about $11.7 billion. This means job cuts to come for Bayer employees. It also means that the Monsanto move proved itself an unfortunate choice. 

Bayer acquired Monsanto in 2018 for a price of $63 billion. This hefty investment has yet to prove itself, and not just with the most recent alarm bells.

In June, the court decided that Monsanto's infamous Roundup weed killer does indeed cause non-Hodgkin's lymphoma. Because Bayer took over the company, they became responsible for the $10 million settlement, some of which is allocated for potential (yet likely) future cases.

Why are these future cases so likely? It mostly has to do with the fact that Bayer continues to sell Roundup in stores, with no warning labels in sight.

Bayer AG trades on the OTC in the German market. Today, the stock opened at $13.96 per share, a steep drop from the previous close of $14.95.

The stock had been holding steady at around $15.60–16 per share since Sept. 21. It wasn't until Wednesday, when the company made their announcement, that shares began to fall dramatically.

However, this dip isn't the only one Bayer stock has seen lately. Earlier in September, they were trading close to $17.00 per share on average. In fact, the decline has been pretty steady since June 24, when Bayer stock traded at $20.54 per share. This is around the same time the Monsanto settlement occurred. 

The most recent fall is the lowest the Bayer stock has been since late March.

Clearly, the market hasn't reacted well to Bayer's news of an uncertain future in their agricultural division, nor their part in the Roundup debate. Bayer has invested heavily in crop science, Monsanto in particular, and 2020's troubles haven't been good to them. From my perspective, their market value will likely stay low until better news comes—whenever that will be.