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Elanco sells aqua business to Merck Animal Health for $1.3b

Transaction allows company to prioritize investments in larger markets with greater earnings potential.

Krissa Welshans

February 5, 2024

3 Min Read
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Elanco Animal Health Incorporated announced today that it has entered into an agreement to sell its aqua business to Merck Animal Health for approximately $1.3 billion in cash, which represents approximately 7.4x the estimated 2023 revenue of the Elanco aqua business.

Elanco's aqua business includes products across both warm-water and cold-water species, generating an estimated $175 million in revenue and approximately $92 million in adjusted EBITDA, excluding the allocation of corporate costs, based on 2023 preliminary results. The divestiture includes current marketed brands, aqua R&D projects, the transfer of manufacturing sites in Prince Edward Island, Canada, and Dong Nai, Vietnam, and approximately 280 commercial and manufacturing employees.

"A strategic decision resulting from a disciplined process over the last year, the sale of the aqua business allows us to prioritize our investments in larger markets with greater earnings potential over the medium and long term, while creating balance sheet flexibility," said Jeff Simmons, president and chief executive officer of Elanco Animal Health. "We are focused on delivering consistent high impact innovation and continue to have confidence in our late-stage pipeline with six potential blockbuster products expected in the U.S. market by 2025.”

Further, Simmons said the company is advancing its next wave of development projects, which will contribute meaningful growth for Elanco through the second half of the decade.

“Importantly, the proceeds from this transaction combined with improved free cash flow from the business, will accelerate deleveraging with net debt to adjusted EBITDA expected in the high-3x to low-4x range by the end of 2025,” he added.

Elanco said plans to use the expected $1.05 billion to $1.1 billion of after-tax cash proceeds to pay down a portion of the Term Loan B debt.

Elanco said the transaction reinforces its focus and investment on its most significant value creation opportunities, notably in pet health and livestock sustainability. In addition to the expected U.S. approvals in the first half of 2024 for Credelio Quattro, Zenrelia and Bovaer, Elanco is pursuing a portfolio of clinical development projects that the company expects to have differentiated profiles and blockbuster potential in significant markets with meaningful growth and earnings potential.

Elanco's targeted areas of focus include next generation products for pet parasiticides, dermatology and pain, as well as livestock sustainability. Additionally, the company is opportunistically pursuing platform-aligned targets, such as monoclonal antibodies, and other major emerging spaces of high unmet need.

"We are excited for the acquisition of Elanco's aqua products, solutions as well as the capabilities and expertise the team brings to our business," said Rick DeLuca, president of Merck Animal Health. "We believe this acquisition, coupled with our commercial and scientific prowess, will deliver enhanced benefits for our aqua customers. The addition of this innovative portfolio of cold water and warm water aqua products across vaccines, anti-parasitic treatments, water supplements and nutrition, will establish Merck Animal Health as a leader in aqua."

The transaction, which is subject to regulatory approvals and customary closing conditions and adjustments, is expected to close around mid-year. The company plans to discuss the transaction further when it releases its fourth quarter and full year fiscal 2023 financial results on February 26.

About the Author(s)

Krissa Welshans

Livestock Editor

Krissa Welshans grew up on a crop farm and cow-calf operation in Marlette, Michigan. Welshans earned a bachelor’s degree in animal science from Michigan State University and master’s degree in public policy from New England College. She and her husband Brock run a show cattle operation in Henrietta, Texas, where they reside with their son, Wynn.

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