Elanco Animal Health Incorporated (NYSE: ELAN) announced the completion of its acquisition of Bayer Animal Health in early August. The $6.89 billion transaction scales Elanco's size and capabilities and positions the company for the long term as a leader in the attractive, consistent animal health industry.
"After nearly two years as an independent company, we have made significant progress in creating a purpose-driven, independent, global company dedicated to animal health - while addressing the most significant animal and human health pandemics of the century: African swine fever and COVID-19," said Jeff Simmons, President and CEO of Elanco. "The timely completion of the acquisition and the momentum of Day 1 in this challenging environment underscores the comprehensive capabilities and discipline of both companies in the execution of their plans".
"This milestone is another important step in Elanco's journey. But ultimately, today is about improving the lives of animals and people and promoting the health of the planet. Pets and protein have never been more important. Gaps in food supply and rising unemployment are increasing the challenges to food security around the world. At the same time, research shows that increased time at home has changed the long-term relationship between pets and their owners, as pets increasingly provide valuable emotional support. We know that improving the lives of animals also makes our lives better".
Meanwhile, the pandemic has accelerated important trends and changed the industry, particularly the desire of pet owners to have access to veterinary care and animal health products in a variety of forms: from on-site care and telemedicine to online purchases delivered directly to the door. The combination of Elanco and Bayer Animal Health combines Elanco's existing strong relationship with veterinarians with Bayer Animal Health's focus on retail and online to create a leading omnichannel provider ideally positioned to serve veterinarians and pet owners wherever they want to shop.
"Especially in the DACH region we are taking an important step towards the future today. With the new Elanco we are not only expanding our growth internationally, but also profiting here in Germany through new, additional locations, expanded production capacities and last but not least through a highly motivated team of animal health experts with complementary skills. We are now also expanding our position in Germany to become one of the market leaders in the field of over-the-counter animal health products and can thus cover further important aspects of comprehensive health care for animals", comments Karin Jager, Managing Director Germany, Austria and Switzerland (DACH) of Elanco.
This acquisition strengthens Elanco's innovation, portfolio and productivity (IPP) strategy, which the company had already implemented before its IPO in 2018. Both companies achieved the deal with a disciplined focus on strategy and careful execution to drive momentum.
- Innovation: Elanco's robust R&D pipeline is now being augmented by five expected launch equivalents from Bayer - bringing Elanco's total expected number of launches to 25 by 2024 - with five of these launch equivalents to be launched by the end of 2021. The transaction also creates new R&D capabilities, including innovative dosing and delivery technology platforms, and provides access rights to Bayer Crop Science's R&D pipeline and prioritized clinical pharmaceutical assets.
- portfolio: The transaction expands Elanco's portfolio to offer veterinarians, farmers and pet owners more comprehensive animal health solutions. By combining Elanco's longstanding focus on the veterinary market with Bayer's direct sales experience, the transaction creates new growth opportunities and expands Elanco's omnichannel presence so that the company can reach customers where and how they want to buy. The merger increases Elanco's petcare business to approximately 50 percent of sales and nearly triples the company's international petcare business. This expanded care portfolio includes services for pets of all ages and care levels, from prevention and wellness for the youngest puppies to support for pets to ensure that they remain an active, central part of the family as they grow older. The transaction also expands Elanco's portfolio of pet parasite control products with topical treatments and collars, making the blockbuster Seresto collar Elanco's top product worldwide.
- Farm Animals: The combined company brings together complementary farm animal portfolios that will enable Elanco to serve an even wider range of the industry and better leverage data and services for customers. The transaction complements a number of key brands in the cattle sector, enhances the company's global Bioprotection portfolio and expands the company's presence in the warm water fish sector.
- Productivity: Elanco plans to use its extensive integration experience - and responsible thinking - to integrate the new company efficiently and quickly. The combined company is expected to generate significant operating cash flow due to its long-standing industry and resilient portfolio. Although the timeframe for achieving the goals set out in the transaction announcement was affected by the COVID 19 pandemic, the Company expects to generate $275 to $300 million from the synergies created by 2025.
"Today, it is ultimately about the veterinarians, farmers and pet owners whom we support through our products and services. If COVID-19 has made anything clear here, it is that the world has never before needed animals and the work of veterinarians and farmers more than it needs now," Simmons said. "Together, we are better able to advocate for our customers and provide solutions to their greatest needs so they can keep healthy, sustainably produced meat, milk, fish and eggs on the table and healthy, active pets in their families. Together we have the potential to improve animal health and the lives of billions of people.
Upon completion of the transaction, Bayer AG received US$ 5.17 billion in cash, comprising the proceeds from the issuance of shares and Tangible Equity Units of the company in the first quarter of 2020 and debt financing from the B Term Loan granted in the first quarter of 2020, which was closed upon closing of the transaction. In addition, approximately 72.9 million common shares of Elanco Animal Health were issued to Bayer AG. These shares are subject to a lock-up, with Bayer not allowed to sell any shares during the first 90 days. During the second 90 days, 50 percent of the shares are subject to a lock-up period, the remainder may be sold after 180 days. In addition, Elanco has completed the necessary antitrust divestments, which had been previously announced. The divested products will generate revenues in 2019 in the range of 120 to 140 million US dollars.