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Article: Elanco and Bayer - Animal heath’s largest ever acquisition is a done deal
11 August 2020
Elanco has closed its purchase of Bayer Animal Health - a deal
that is expected to propel the former to second in the industry
rankings.
The transaction was valued at $6.89 billion. This was funded by
$5.17bn in cash and 72.9 million shares. These shares will be
subject to a lock up clause, whereby Bayer cannot sell any of them
for the first 90 days. In the second 90 days, 50% of shares are
eligible for sale and the remainder may be sold after 180 days.
The fee is smaller than the $7.6bn that was originally
signposted when the deal was first announced. Elanco told IHS
Markit Animal Health this change is based on the difference in
Elanco's stock price since the deal was first struck. Stock
received by Bayer was subject to a 7.5% symmetrical collar centered
on Elanco's volume-weighted average price for the 30 trading days
ended August 6, 2019 of $33.60.
Elanco has also completed all the anti-trust product divestments
that were required to finalize the Bayer transaction. The divested
products had 2019 revenues in the range of $120 million to $140
million.
As well as being the industry's largest ever acquisition, it is
also the animal health deal that has witnessed the most public and
media scrutiny. Previous multi-billion-dollar transactions -
Elanco's purchase of Novartis Animal Health and Boehringer
Ingelheim's capture of Merial - were not conducted by public
standalone animal health businesses.
Since it was first announced almost one year ago, Elanco's
reasonings for the deal and its ongoing anti-trust manoeuvres have
been fully documented.
Employees of both companies have been taking to social media
over the weekend to hail the deal that not only gives Elanco a much
broader business platform but marks the end of more than 100 years
of Bayer owning an animal health division.
The acquisition also signifies animal health's declining
reliance on human pharma businesses. Boehringer Ingelheim and Merck
are now the only major human health groups that retain animal
health.
Benefits of the deal
The deal provides the combined company with the scale and
capabilities to not only weather the current market insecurities
linked to COVID-19 but to capitalize on animal health's long-term
growth drivers.
Elanco now owns a broader omni-channel customer focus that
encompasses its relationship with veterinarians and taps into
Bayer's direct-to-consumer expertise.
While the two firms entered an agreement before the global
consequences of COVID-19 were fully apparent, the transaction will
enable Elanco to benefit from trends that have been accelerated by
the pandemic - increased interest in access to pet care via online,
retail, telemedicine and direct-to-doorstep sources.
The deal also allows Elanco to offer a 50:50 balance for the mix
of products for companion animals and food animals. The purchase of
Bayer has significantly upped Elanco's companion animal offering
and nearly tripled the firm's international pet health
business.
Elanco's pet parasiticide portfolio will be broadened with
topical treatments and collars, while Seresto has become the
company's top-selling product globally. Seresto registered revenues
of €293m ($343m) in 2019.
Elanco will also benefit from Bayer's major cattle brands,
global bio-protection portfolio and warm water fish products.
There are now five extra expected launch equivalents from Bayer
in the Elanco pipeline. This means the company anticipates 25 new
launches by 2024. Of these, five are expected by the end of
2021.
The deal also provides Elanco with new R&D capabilities that
bolster its dosing and delivery technology platforms. The company
has also gained access rights to Bayer's Crop Science R&D
pipeline and de-prioritized clinical pharma assets.
Elanco said it plans to "leverage its extensive integration
experience - and ownership mindset - to efficiently and quickly
integrate the new business". The timing of achieving goals from the
deal have been impacted by COVID-19. Nevertheless, Elanco expects
to deliver $275-$300m in synergies by 2025.
Making advances in time of pandemic
Jeff Simmons - president and chief executive of Elanco - pointed
out the deal was pursued and sealed in the shadow of vast
barriers.
He stated: "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.
"Delivering on the timely close of the acquisition and bringing
momentum into day one in this challenging environment underscores
the deep capability and disciplined execution from both
companies.
"This milestone is another key step in Elanco's journey. But,
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. 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."