Wednesday, December 6, 2023

Elanco acquiring Bayer’s animal health business

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GREENFIELD, Ind. — Elanco Animal Health Inc. has announced that it has entered into an agreement with Bayer AG to acquire its animal health business in a transaction valued at $7.6 billion.

The transaction, which is subject to regulatory approval and other customary closing conditions, creates the second largest animal health leader while strengthening and accelerating the company’s Innovation, Portfolio and Productivity (IPP) strategy, Elanco said.

The transaction will double Elanco’s companion animal business, advancing the company’s intentional portfolio mix transformation and creating a balance between its food animal and companion animal segments, the company noted, adding that it expects the combined organization to continue to deliver mid-single digit revenue growth, while accelerating achievement of adjusted gross margin goals and delivering double digit adjusted 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, Elanco president and CEO. “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.”

“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,” said Werner Baumann, Bayer AG’s CEO. “And now, the combination with Elanco will give rise to a leading competitor in the animal health industry, benefiting customers, employees and shareholders alike.”

The addition of Bayer Animal Health enhances all major drivers of Elanco’s IPP strategy.

  • Portfolio

Adding Bayer Animal Health’s business accelerates Elanco’s portfolio transformation by elevating companion animal to nearly half of the overall business. The combination creates access to new segments of the parasiticides market with topical treatments and collars, and propels Elanco into expanding pet e-commerce and retail spaces. This complements Elanco’s already strong veterinary presence, enabling the company to reach more pet owners.

In the food animal business, the acquisition will add a number of anchor cattle brands, create a bio-protection portfolio and expand Elanco’s aqua presence into warm water fish. The enhanced global presence will allow Elanco to better serve veterinarians, farmers and pet owners.

  • Innovation

The transaction augments Elanco’s research and development pipeline with eight significant new development projects and 30-plus lifecycle products, while providing certain access rights to Bayer’s CropScience R&D pipeline and de-prioritized clinical pharma assets. It adds superior capabilities for R&D platforms in key areas along with innovative dosing and delivery technology platforms. The acquisition also adds additional bench strength and scale to Elanco’s R&D team, the company noted.

  • Productivity

The combination of Bayer and Elanco accelerates Elanco’s margin expansion opportunity and delivers adjusted EPS accretion in the first full year post-closing, then high single to low double-digit percentage accretion in year two. The acquisition also unlocks Elanco’s ability to achieve 60 percent adjusted gross margin and 31 percent adjusted margin faster than on a stand-alone basis, with the increased ability to improve beyond.

It brings operating cash flow of approximately $1 billion annually by the third year post-closing, allowing Elanco to reach three-times gross debt to adjusted EBITDA (earnings before interest, tax, depreciation and amortization) in the same time period, along with the potential for $275 million to $300 million in synergies. Finally, Elanco will bring together two complementary dedicated animal health businesses to operate on one fit-for-future infrastructure.

“This combination will join two complementary animal health-focused entities previously under the human pharma umbrella into a dedicated company focused on delivering for farmers, veterinarians and pet owners. It creates increased speed, attention and investment to bring customers greater access and options at a variety of price points to make a difference in the lives of animals,” Simmons said. “We look forward to adding Bayer Animal Health’s employees’ breadth of expertise. Ultimately, we believe these increased capabilities and knowledge will allow us to better support the veterinarian, creating a bridge between the pet owner and the veterinarian where relationships don’t exist today.”

Elanco will finance the transaction through both cash and equity. Bayer AG will receive $5.32 billion in cash, subject to customary purchase price adjustments, and $2.28 billion or approximately 68 million Elanco Animal Health common shares. This represents a 70 percent to 30 percent cash-to-equity mix.

More information can be obtained at

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