GREENFIELD, Ind. – The acquisition of Bayer AG’s animal health business will double Elanco’s Companion Animal Business and create the second-largest animal health concern in the world. The two companies announced the deal on Aug. 20. The transaction is valued at $7.6 billion and is subject to regulatory approval and customary closing conditions.
Elanco expects the acquisition to deliver adjusted earnings per share accretion in the first full year post-closing, then high single to low double-digit percentage accretion in year two. Elanco also expects The to achieve 60 percent adjusted gross margin and 31 percent adjusted EBITDA margin faster than on a stand-alone basis. Operating cash flow will be approximately $1 billion annually by the third-year post-closing, which will allow Elanco to reach three-times gross debt to adjusted EBITDA in the same time period, along with the potential for $275 million to $300 million in synergies.
Elanco said the company 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 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,” said Jeffrey N. Simmons, president and CEO of Elanco. “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.
“We look forward to adding Bayer Animal Health’s employees’ breadth of expertise,” Simmons said. “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 detailed additional benefits of the acquisition starting with the transformative impact of the adding Bayer Animal Health to Elanco’s portfolio. First, the acquisition gives Elanco access to pet e-commerce and retail spaces.
“This complements Elanco’s already strong veterinary presence, enabling the company to reach more pet owners,” the company said. “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.”
Elanco also gains a presence in the parasiticides market — a new segment for the company — with topical treatments and collars.
Second, Elanco gains eight new development projects and more than 30 “lifecycle products” that come with certain access rights to Bayer’s CropScience research and development pipeline. “It adds superior capabilities for R&D platforms in key areas along with innovative dosing and delivery technology platforms,” Elanco noted. “The acquisition also adds additional bench strength and scale to Elanco’s world-class R&D team.”
Werner Baumann, CEO of Bayer AG, said, “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. And now, the combination with Elanco will give rise to a leading competitor in the animal health industry, benefiting customers, employees and shareholders alike.”