Bayer to Sell Animal Health to Elanco
As widely expected, Bayer has definitively agreed to sell its animal health business to Eli Lilly spinoff Elanco Animal Health. The $7.6 billion deal will create the market’s second largest player, with a share of 13%, behind Zoetis and ahead of unlisted Boehringer Ingelheim.
The acquisition price is in the range mooted earlier and consists of $5.3 billion in cash, subject to adjustments, and $2.3 billion in Elanco shares based on the unaffected 30-day volume weighted average price as of Aug. 6, 2019.
Elanco said the shares transferred to Bayer would be equivalent to around 18.2% of the new animal health player but the number could rise or fall by as much as 7.5%, depending on the closing date price.
The German group said the transaction value represents an implied multiple of 18.8x based on the animal health business’s 12-months EBITDA before special items as of Jun. 30, 2019. The divestment should be concluded by mid-2020, subject to antitrust clearance and other customary closing conditions, it said.
As predicted by analysts, due to Elanco’s large debt burden following its separation from Lilly, Bayer will be obliged to retain its equity stake in the divested business for an undetermined time.
Elanco said it planned to fund the cash payment with a combination of new debt and equity and that thesize of the proposed equity increase will depend on future market developments. Bayer itself is carrying a debt load of around €35.7 billion ($39.6 billion), inflated by its $63 billion acquisition of US agribusiness giant Monsanto.
The transaction is the biggest in a series of portfolio measures Bayer initiated in November 2018 to help fund its acquisition of Monsanto. It has already announced deals to shed its consumer health brands Coppertone and Dr. Scholl’s.
Germany's Beiersdorf is picking up the sun care product for $550 million, and US private equity group Yellow Wood will take the foot care portfolio for $585 million. Last week, Bayer said it would sell its 60% in site services provider Currenta to Australia’s Macquarie Infrastructure and Real Assets (MIRA) for €1.7 billion ($1.9 billion).
Elanco CEO Jeff Simmons said the combination of his company’s business with Bayer’s is “highly complementary,” adding that combining Elanco’s strong relationship with veterinarians and Bayer’s leadership in retail and e-commerce will “ultimately benefit all customers. The move combines our long-standing focus on the veterinarian, while meeting pet owners’ changing expectation of pet care and access to products.”
The deal with Bayer is the US company’s largest since its separation from Lilly. Simmons said it will double Elanco’s pet business and strengthen its position in emerging markets in addition to enhancing its presence in the cattle sector.
With sales of $1.8 billion U.S. dollars in 2018, Bayer’s Animal Health business is a global leader in the industry. Its Advantage-branded family of flea, tick and worm control products is market-leading.
In selling the assets to the US player, Bayer CEO Werner Baumann said the Leverkusen pharmaceuticals and agrochemicals producer was able to “safeguard the interests of our employees.” Under the agreement with Elanco, he said “all employees will have at least one year of employment protection against unilateral termination with similar and no less favorable benefits in the aggregate.”
According to reported market research, the $44 billion animal health sector will grow by 5-6% annually, driven by an increase in livestock farming and by the willingness of more pet owners to spend money on their wellbeing.
Bayer’s shares were little changed following the Aug. 20 announcement. Analysts said the Roundup lawsuits the group inherited from Monsanto will continue to weigh on its stock until they run their course or Bayer decides to settle.