Elanco will become the second-largest animal health company in the world following its acquisition of Bayer’s animal health business in a $7.6-billion deal announced Tuesday by both companies.
Elanco said the purchase — 70% of which was funded with $5.3 billion in cash, with the remaining 30% made up of Elanco stock — would double its pet business and strengthen its cattle portfolio by adding Bayer’s products to its offerings.
“This combination will join two complementary animal health-focused entities previously under the human pharma umbrella into a dedicated company focused on delivering for farmers, veterinarians and pet owners,” Elanco CEO Jeff Simmons said. “It creates increased speed, attention and investment to bring customers greater access and options at a variety of price points to make a difference in the lives of animals.”
The sale is in line with a series of ambitious growth targets Bayer announced in December.
“Over the past decade and a half, Bayer has transformed from a diversified chemicals and pharmaceuticals group into a life science company with leading positions in health and nutrition, very well positioned to benefit from the megatrends of a growing and aging world population,” Bayer said then.
On Tuesday, the company said its exit from the animal health business “marks the largest transaction in the series of portfolio measures initiated by Bayer in November 2018,” the company said Tuesday. Bayer had previously announced it was selling Coppertone and Dr. Scholl’s along with its 60% stake in Currenta, a German company that provides services for the chemical industry.
“We are therefore delivering ahead of schedule on one of the key priorities for driving value creation that we communicated at our Capital Markets Day in December 2018,” Bayer CEO Werner Baumann said.
For Elanco, the transaction will eventually add $1 billion in cash flow, Simmons said, and help the company expand further into e-commerce and retail establishments. Elanco said it will be acquiring “anchor cattle brands” that treat Bovine Respiratory Disease and control a variety of insect pests, and gain “certain access rights” to some of Bayer CropScience’s R&D pipeline.
Once the transaction is complete, only Zoetis would be bigger than Elanco in animal health.
Longtime parent company Eli Lilly spun off Elanco as a separate company nearly a year ago.
Investors weren't thrilled with Elanco’s purchase. In heavy trading, its stock tumbled by more than $2.50 per share by 11:25 a.m., or about 8.5%. Bayer’s stock was up a few cents from its opening of $18.40 per share.
The sale comes as Bayer is in negotiations about a possible settlement of thousands of court cases in which plaintiffs allege Roundup caused their non-Hodgkin lymphoma. Estimates of the cost of a global settlement — which would include all the cases — vary considerably, but mediator Kenneth Feinberg, who is leading mediation talks in the Roundup litigation, recently dismissed a news report of an $8 billion settlement offer, calling it "pure fiction."
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