Bayer continues to increase life sciences focus with $7.6-billion deal to sell animal health unit to Elanco

Bayer announced Tuesday that as part of measures to increase its focus on life sciences, the company agreed to sell its animal health business to Elanco Animal Health for $7.6 billion. "This transaction enhances our focus as a global leader in life sciences," said Bayer CEO Werner Baumann, adding "we are therefore delivering ahead of schedule on one of the key priorities for driving value creation that we communicated…in December 2018."  

The sale comes as part of a restructuring initiative launched last year under which Bayer said it would exit the animal health business in order to focus on its core areas of pharmaceuticals, consumer health and crop science. As part of the overhaul, the company previously announced the divestiture of its consumer health brands Coppertone and Dr. Scholl's, along with the sale of its 60% stake in German site services provider Currenta.  

The divestitures come as Bayer looks to reduce its debt load of approximately €35.7 billion ($39.6 billion) following last year's purchase of agrochemical and agricultural biotechnology firm Monsanto. In July, a report suggested that Bayer had approached Elanco, which was spun out from Eli Lilly last year, regarding a potential merger of their animal health businesses. Sources close to the matter also said that Chinese firm Fosun International was contemplating making an offer for Bayer's animal health unit.  

Under the deal, Bayer will receive $5.3 billion in cash and $2.3 billion in Elanco stock valued at $33.60 per share. Bayer noted that the sale is expected to be concluded in mid-2020, adding that it intends to exit its stake in Elanco over time. After closing of the deal, the combined company will be the second-largest animal health firm behind Zoetis, which was separated from Pfizer in 2013.

Commenting on the transaction, Citi analysts said Bayer sold the animal health business near the top of the price range it had estimated, adding that it expects the company to buy back €3 billion ($3.3 billion) worth of its own shares in 2020 to offset lower earnings per share from the divestments, with the remainder of the proceeds used to reduce debt.

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