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Elanco-UM

Elanco closes Bayer Animal Health acquisition

Transaction valued at $6.89 billion, funded by $5.17 billion in cash and 72.9 million shares to Bayer.

Elanco Animal Health Inc. announced Aug. 3 that it has closed the acquisition of Bayer Animal Health, bringing together two legacy animal health firms with a combined 166 years of innovation and service.

The transaction, valued at $6.89 billion, expands Elanco’s scale and capabilities, positioning the company for the long term as "a leader in the attractive, durable animal health industry," the company said in announcing the milestone.

“Nearly two years into our journey as an independent company, we have made significant progress in creating a purpose-driven, independent global company dedicated to animal health — all while weathering the century’s most significant animal and human health pandemics: African swine fever and COVID-19,” Elanco president and chief executive officer Jeff Simmons said. “Delivering on the timely close of the acquisition and bringing momentum into day 1 in this challenging environment underscores the deep capability and disciplined execution from both companies.

“This milestone is another key step in Elanco’s journey. Ultimately, today is about improving the lives of animals, people and improving the health of the planet. Pets and protein have never been more important,” Simmons said. “Food supply disruptions and increasing unemployment are driving food security challenges around the world. At the same time, research shows increased time at home has changed the long-term relationship between pets and their owners, as pets increasingly provide valuable emotional support. We know making life better for animals simply makes life better.”

Elanco noted that the merger combines its existing strong relationship with veterinarians with Bayer Animal Health’s focus on retail and online in order to create an "omni-channel leader" positioned to serve veterinarians and pet owners where they want to shop.

This acquisition strengthens Elanco’s "Innovation, Portfolio, Productivity" (IPP) strategy, which the company has been executing on since before its initial public offering in 2018.

In particular, Elanco noted:

* Innovation. Elanco’s research and development (R&D) pipeline is now bolstered with five expected launch equivalents from Bayer — bringing Elanco’s anticipated total to 25 by 2024 — with five of those expected to launch by the end of 2021.

The transaction also adds new R&D capabilities, including innovative dosing and delivery technology platforms, and provides access rights to Bayer’s Crop Science R&D pipeline and de-prioritized clinical pharma assets.

* Portfolio. The combination expands Elanco’s portfolio to provide farmers, pet owners and veterinarians more comprehensive animal health solutions. By combining Elanco’s long-standing focus on veterinarians with Bayer’s direct-to-consumer experience, the transaction opens new opportunities for growth and expands Elanco’s omni-channel presence, enabling the company to meet customers where and how they want to shop.

For pet health, the combination "elevates Elanco’s pet business to approximately 50% of revenues and nearly triples the company’s international pet health business." This expanded portfolio of care provides for pets at all ages and stages, from disease prevention and wellness for the youngest puppies to helping pets remain an active, central part of the family in their later years.

For farm animals, the combined company brings together complementary farm animal portfolios that position Elanco to serve an even broader spectrum of the industry and better leverage data and services for customers. The transaction adds a number of anchor cattle brands, enhances the company’s global bio-protection portfolio and expands the company’s aquaculture presence into warm water fish.

* Productivity. Elanco said it plans to leverage its extensive integration experience — and ownership mindset — to efficiently and quickly integrate the new business. The combined company is expected to generate significant operating cash flow as a result of the durable industry and resilient portfolios. While the timing of achieving goals from the deal announcement have been affected by the COVID-19 pandemic, the company still expects to deliver $275-300 million in synergies by 2025.

Financing terms

According to the announcement from Elanco, upon close, Bayer AG received $5.17 billion in cash, comprised of proceeds from the company’s equity and tangible equity unit issuances in the first quarter of 2020 and debt financing from the Term Loan B priced in the first quarter of 2020 that closed with the transaction closing.

Additionally, approximately 72.9 million shares of Elanco Animal Health common stock were issued to Bayer AG, which will be subject to certain retention periods until mid-2021. In a statement, Bayer said it maintains its intention to divest the Elanco shares in "due course."

Moreover, Elanco said it has completed the required antitrust divestures that had been previously announced. The divested products had 2019 revenue in the range of $120-140 million.

According to Bayer, the animal health business divestment is the largest transaction in a series of portfolio measures Bayer initiated in November 2018.

Bayer’s former Animal Health business has about 4,400 employees and achieved sales of 1.57 billion euros in 2019. It develops and markets innovative products and solutions for the prevention and treatment of diseases in companion and farm animals.

“We would like to thank the employees of Animal Health for their long-standing commitment and the success this has brought for Bayer. In Elanco, we’ve found a strong new owner for our Animal Health business. This transaction creates one of the global animal health leaders,” said Werner Baumann, chairman of the board of management of Bayer AG. “We’ve also succeeded in safeguarding the interests of the workforce.”

Under the agreement with Elanco, all Bayer Animal Health employees will have at least one year of employment protection against unilateral termination, with similar and no less favorable benefits in the aggregate.

Simmons noted that Elanco values Bayer Animal Health's presence in the Kansas City Animal Health Corridor and has retained senior leadership from both companies.

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