German-based Bayer AG, squeezed by liabilities for Roundup, the weed-killer it inherited with its acquisition of Monsanto last year, is selling its veterinary drugs business to Elanco Animal Health in a deal valued at $7.6 billion.
“Bayer is the world’s largest maker of flea and tick control products for cats and dogs, with Elanco praising its ‘top presence on Amazon with ‘industry-leading e-commerce/retail capabilities,’ Reuter’s Ludwig Burger points out.
“Market researchers expect the $44 billion animal health sector to grow 5%-6% per year, driven by an increase in livestock farming and, more importantly, by more people wanting to own pets and spending more money on their wellbeing,” Burger adds.
“Elanco, based in Greenfield, Indiana, was a division of Eli Lilly & Co. until the drugmaker sold a minority stake in the animal-health unit last September in an initial public offering,” Ruth Bender writes for The Wall Street Journal.
The deal “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,” Elanco CEO Jeffrey Simmons states in the release announcing the deal.
“Bayer is battling to regain investor confidence after a majority of shareholders signaled in April a lack of confidence in the company’s leadership. Shareholders have accused Bayer Chief Executive Werner Baumann of underestimating the legal and reputational risks of the Monsanto deal,” the WSJ’s Bender reports.
“Wall Street analysts have expressed reservations about the potential deal, saying that the Bayer business is unlikely to deliver a significant boost to Elanco’s growth,” observes Bloomberg’s Riley Griffin.
“Elanco is buying what I view as a flat-to-declining business that doesn’t innovate and has a high concentration risk,” Craig-Hallum Capital Group analyst Kevin Ellich told Griffin in an interview before the deal was announced. “The deal is dilutive to shareholders. At the end of the day, it’s just not that attractive. I don’t see how the stock goes up,” Ellich continued.
Elanco’s “Simmons said he’s looking forward to setting the record straight with investors. ‘Now we’re able to respond to the marketplace: There’s been no change in our strategy, this is about growth and innovation,’ he said,” Griffin writes.
“Bayer will receive $5.4 billion in cash and $2.3 billion of stake in Elanco, which it plans to sell off gradually. The combined company will have an estimated market share of about 13%, making it the second largest animal-health firm by revenue, behind only U.S. rival Zoetis ZTS, which was owned by Pfizer PFE until 2013,” Zacks’ Mitchell Moore writes for Yahoo Finance.
“Bayer is in the middle of a lengthy corporate restructuring that was initiated as a result of its June 2018 acquisition of Monsanto. The firm now is involved in a class-action lawsuit due to claims that the active ingredient, glyphosate, in its popular weed-killer Roundup causes cancer. There are currently about 18,000 claims in the suit,” Moore adds.
“Bayer had warned investors in December that it would shed its animal health division as part of a bigger cost-saving drive and so that it could focus on its agriculture and drug divisions. The business, based in Leverkusen, Germany, has already raised $550 million with the sale of the Coppertone sun protection business in May, and $585 million from its Dr. Scholl’s unit in July,” Isabel Togoh reports for Forbes.
“Earlier this month, Bayer proposed paying up to $8 billion to settle all current and future Roundup claims. The company maintains that the weedkiller glyphosate, which plaintiffs have accused of causing their cancer, is safe. It is appealing judgements worth tens of millions of dollars, which has already been reduced in court,” Togoh continues.
The sale to Elanco includes good will, no doubt, such as the free YouTube videos Bayer Animal Health offers delving into such topics as diabetes in dogs and the “Lifecycle of a Flea.” Caution: Should you view “Video 1” of the six-part series on the latter, you will never look at that plush carpet in your living room in quite the same way ever again.