August 22, 2019

By Lynda Kiernan

U.S.-based Elanco Animal Health has agreed to acquire Bayer’s Animal Health Business for $7.6 billion. 

The deal, which will give Elanco 13 percent of the global market and lift it to the rank of the second largest animal health company in the world after Zoetis,  will consist of $5.3 billion in cash, and another $2.3 billion in Elanco stock.

In December 2018 Bayer CEO Werner Baumann notified shareholders that the company would consider its options after its share price fell by more than 35 percent following its acquisition of Monsanto in 2016 for $66 billion. 

“We are entering a new era in agriculture – one with significant challenges that demand new, sustainable solutions and technologies to enable growers to produce more with less,” said  Hugh Grant, chairman and chief executive officer at Monsanto at the time. ”This combination with Bayer will deliver just that – an innovation engine that pairs Bayer’s crop protection portfolio with our world-class seeds and traits and digital agriculture tools to help growers overcome the obstacles of tomorrow.”

Despite the optimism, since the Monsanto acquisition, Bayer has faced significant challenges connected with the subsequent 18,000 claims alleging that Monsanto’s RoundUp herbicide is carcinogenic.

Facing billions of dollars in claim payouts, and already carrying $40 billion in debt, Bayer has already sold its Coppertone sun protection business for $550 million, and its Dr. Scholl’s business in $585 million, as well as its majority stake in site services provider, Currenta.

For Elanco, which is a spin-out from Eli Lilly and Co., and produces feed additives for livestock feed, antibiotics, and pet health treatments, the acquisition of Bayer’s animal health unit will expand its e-commerce pet platform, and the company expects the deal to generate mid-single digit revenue growth, accelerate the achievement of its adjusted gross margin goals, and deliver double digit adjusted EBITDA margin growth.

“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,” said Jeffrey N. Simmons, president and CEO, Elanco. 

“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 sale of its Animal Health Business is the largest divestiture for Bayer to-date, which as a global giant saw $1.8 billion in sales in fiscal 2018. However, the company was able to include in the terms of the deal certain protections for its Animal Health employees.

“We would like to thank all our Animal Health employees for the commitment they have shown over the years and for the success this has brought to Bayer and to our Animal Health business,” said Baumann in a company statement that explained that the deal with Elanco included a clause that gives Bayer Animal Health employees a minimum of one year employment protection against unilateral termination.

– Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.