Lilly announces agreement to acquire Novartis Animal Health

Lilly announces agreement to acquire Novartis Animal Health

An agreement has been reached that has Lilly acquiring Novartis Animal Health to diversify its own animal health business, Elanco Animal Health.

Eli Lilly & Company has announced an agreement to acquire Novartis Animal Health for approximately $5.4 billion in an all-cash transaction that will strengthen and diversify Lilly’s own animal health business, Elanco Animal Health.

The deal will make Elanco the second-largest animal health company in terms of global revenue, solidify its number two ranking in the U.S. and improve its position in Europe and the rest of the world.

With a presence in approximately 40 countries and 2013 revenue of approximately $1.1 billion, Novartis Animal Health is focused on developing better ways to prevent and treat diseases in pets, farm animals and farmed fish.

Under the deal, Lilly will acquire Novartis Animal Health’s nine manufacturing sites, six dedicated research and development facilities, a global commercial infrastructure with a portfolio of approximately 600 products, a robust pipeline with more than 40 projects in development, and an experienced team of more than 3,000 employees.

Lilly will acquire all assets of Novartis Animal Health for a total purchase price of approximately $5.4 billion, including anticipated tax benefits. Lilly plans to fund this acquisition with approximately $3.4 billion of cash-on-hand and $2.0 billion in debt to be issued. No other financial terms of the transaction are being disclosed. The transaction is expected to close by the end of the first quarter of 2015, subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, similar requirements outside the U.S., and other customary closing conditions. The transaction is not subject to any financing conditions.

By improving efficiencies and reducing costs across both Elanco and Novartis Animal Health, Lilly said it expects to achieve estimated cost savings of approximately $200 million per year within three years of deal closing, equating to more than 10% of operating expenses from the combined animal health businesses. Excluding the amortization of intangibles, Lilly said it expects the combined entity to achieve EBIT as a percent of revenue in the mid-20% range by 2018. The company expects the transaction to be accretive to earnings on a cash basis beginning in 2016, excluding integration costs. The timing of accretion on a GAAP basis is dependent upon final purchase accounting. The acquisition is not expected to change the company’s dividend policy or current share repurchase program, the company said.

John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer said that the acquisition of Novartis Animal Health validates Lilly’s commitment to Elanco as a key component of Lilly’s business going forward.

“Animal health continues to represent an attractive growth opportunity for Lilly. We intend to keep Elanco and to take advantage of the substantial synergies between our animal health and human health businesses,” said Lechleiter.

“Significant investments in our animal health business in recent years have enabled Elanco to double its revenue since 2008, leading the industry in growth. Global trends suggest continued sustained demand for animal health products in the years ahead. Through this acquisition, which moves Elanco to top-tier in the industry, we intend to create value for our shareholders by adding to our promising pipeline of innovative animal health assets, increasing sales through a larger commercial footprint, and improving efficiencies and lowering costs.”

The acquisition will greatly expand and complement Elanco’s product portfolio, R&D and manufacturing capabilities, and commercial presence in key geographies. In particular, the company said it will provide Elanco with a greater commercial presence in the companion animal and swine markets, expands Elanco’s presence in the equine and vaccines areas and creates an entry into the aquaculture market.

“This deal creates a global animal health leader able to deliver even more innovation and value to our customers,” said Jeff Simmons, senior vice president of Eli Lilly & Company and president of Elanco Animal Health. “Combining these two great companies will enable us to provide more diversified brands, reach more market segments, expand our global footprint, and strengthen our pipeline, capabilities and expertise.  Best of all, it will enable Elanco to better fulfill our important mission of enriching people’s lives through safe, nutritious, affordable food and healthier pets.  And that directly supports Lilly’s mission to make life better for people around the world.”

“Lilly emerged from our competitive process as the clear best buyer for Novartis Animal Health and a good home for our employees,” said Joseph Jimenez, CEO of Novartis. “We look forward to a smooth transition of the business over the next several quarters.”

In a separate agreement, Novartis will acquire GlaxoSmithKline’s (GSK) oncology products for a $14.5 billion payment. Jimenez noted that the GSK purchase will allow Novartis to better focus on innovative businesses with global scale, improve the financial strength of Novartis and make an immediate contribution to Novartis’ growth rates and margins.

BofA Merrill Lynch is acting as financial advisor to Lilly and Weil, Gotshal & Manges LLP is acting as legal counsel to Lilly. Goldman Sachs is acting as financial advisor to Novartis and Freshfields Bruckhaus Deringer is acting as Novartis’ legal counsel.

The innovative, high-quality medicines of Novartis Animal Health contribute to the quality of life, health and welfare of animals around the world. For pets, their products are effective aids to treat some internal and external parasites, prevent heartworm and flea infestations and treat ailments such as arthritic pain and kidney, heart and allergic diseases. For farm animals, they offer therapeutic products to treat parasitic and bacterial diseases and are also continually developing new vaccines to prevent diseases in livestock and farmed fish. Specific needs of food producers in the area of farm bioprotection are met by providing innovative fly control products and services.

Elanco is a global, innovation-driven company that develops and markets products and services to improve animal health and protein production in more than 75 countries. Elanco employs more than 3,000 people worldwide, with offices in more than 40 countries, and is a division of Eli Lilly and Company, a leading global pharmaceutical corporation.

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