Bayer to divest animal health business to Elanco for $7.6bn

US-based veterinary pharmaceuticals producer Elanco Animal Health has agreed to acquire German drug giant Bayer’s animal health business for $7.6 billion, financed by a combination of 70% cash and 30% equity.

The transaction, which enhances emerging market presence and strengthens cattle business, will strengthen Elanco’s Innovation, Portfolio, and Productivity (IPP) strategy, creating the second largest veterinary-medicine company by global revenue.

Elanco is expected to double pet business with well-known brands by balancing its Food Animal and Companion Animal segments and integrate veterinary focus with Bayer’s e-commerce and retail leadership for full channel coverage.

Under the deal, the company will expand innovation through pipeline, delivery platforms, scale and certain access rights to Bayer’s CropScience R&D pipeline and de-prioritized clinical pharma assets.

Bayer to sell animal health business to Elanco. Photo courtesy of Bayer AG.

Jeffrey N Simmons – president and CEO of Elanco said: “In our first four quarters as an independent company, we have validated the significant value creation potential from a dedicated focus on animal health and a targeted strategy.

“Joining Elanco and Bayer Animal Health strengthens and accelerates our IPP strategy, transforms our portfolio with the addition of well-known pet brands, brings an increased presence in key emerging markets, expands innovation, and accelerates our margin expansion journey.

“The move combines our long-standing focus on the veterinarian while meeting pet owners’ changing expectation of pet care and access to products.”

Apart from adjusted gross margin goals and double-digit adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin growth, Elanco expects the combined organization to deliver mid-single-digit revenue growth.

Werner Baumann – CEO of Bayer said: “Our Animal Health business is among the pioneers of this sector, having built up an attractive portfolio and secured well-established market positions in the companion and farm animal segments.

“And now, the combination with Elanco will give rise to a leading competitor in the animal health industry, benefiting customers, employees and shareholders alike.”

Subject to regulatory approvals and other customary closing conditions, the transaction is expected to close in mid-2020.